<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1994 Commission file no. 0-17180
THE CIVISTA CORPORATION
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-1574988
- ----------------------- ---------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 CENTRAL PLAZA SOUTH, CANTON, OHIO 44702-1403
- -------------------------------------- ---------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 456-7757
---------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
- --------------------------------
COMMON SHARES, WITHOUT PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the Registrant's common shares held by
nonaffiliates of the Registrant on December 1, 1994 was $106,294,824.
The number of the Registrant's common shares outstanding on December 1, 1994
was 3,498,904 shares.
================================================================================
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Item
Number Page
- ------ -----
PART I
<S> <C> <C>
1. Business
General 3
Lending Activities 4
Risk Elements 7
Investment Activities 10
Savings Activities 11
Borrowings 11
Interest Rate Margins 12
Asset/Liability Management 15
Subsidiary and Other Activities 15
Certain Ratios 16
Federal and State Taxation 16
Competition 17
Employees 17
Regulation 17
2. Properties 23
Properties Used in Savings and Loan Operations 23
CASNET 23
Other Properties 23
3. Legal Proceedings 23
4. Submission of Matters to a Vote of Shareholders 23
PART II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters 23
6. Selected Financial Data 25
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 26
8. Financial Statements and Supplementary Data 35
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 69
PART III
10. Directors and Executive Officers of the Registrant 69
11. Executive Compensation 72
12. Security Ownership of Certain Beneficial Owners and Management 77
13. Certain Relationships and Related Transactions 78
PART IV
14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 79
Signatures 81
Exhibit Index 82
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
- -------
The CIVISTA Corporation ("CIVISTA"), headquartered in Canton, Ohio, is a
unitary savings and loan holding company whose principal asset is the common
stock of its wholly owned subsidiary, Citizens Savings Bank of Canton
("Citizens Savings Bank"). In addition, CIVISTA owns all of the common stock
of Citizens Savings Corporation of Stark County ("CSC"), The CASNET Group, Inc.
("CASNET"), Citizens Investment Corporation ("CIC") and Crest Investments,
Inc.; two apartment complexes, and short-term investments.
CIVISTA was organized in March 1987 and remained inactive until August 17,
1988. On that date, Citizens Savings Bank shareholders became CIVISTA
shareholders in a tax-free and regulatory reorganization. This transaction was
accounted for as a pooling-of-interests.
As a savings and loan holding company, CIVISTA is principally engaged in
management of Citizens Savings Bank. Citizens Savings Bank is an
Ohio-chartered savings and loan association headquartered in Canton, Ohio. It
has operated continuously under the capital stock form of ownership since its
organization in 1899. Citizens Savings Bank conducts its activities from a
lending office and a network of 11 full service offices located in Stark
County, Ohio. Citizens Savings Bank is a member of the Federal Home Loan Bank
("FHLB") of Cincinnati and its deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") through the Savings Association Insurance Fund
("SAIF") up to the maximum amount permitted by law.
On August 10, 1994, CIVISTA entered into an Agreement of Affiliation and Plan
of Merger with First Bancorporation of Ohio ("FBOH"). Pursuant of this
agreement, CIVISTA will be merged into FBOH and the merger will be accounted
for as a pooling of interests. It is contemplated that Citizens Savings Bank
will merge with The First National Bank in Massillon, a Stark County subsidiary
of FBOH. Under the terms of the agreement, FBOH will exchange 1.723 shares of
its common stock for each outstanding CIVISTA share. CIVISTA has granted FBOH
an option to acquire 350,655 shares of CIVISTA preferred stock at $33.50 per
share, which option becomes exercisable upon the occurrence of specified events
not consistent with the merger being consummated. The merger is expected to be
completed during the first calendar quarter of 1995. FBOH intends to dispose
of CIVISTA's non-banking subsidiaries and assets including CSC, CASNET, CIC,
Crest Investments, Inc. and the apartment complexes owned by CIVISTA.
3
<PAGE> 4
LENDING ACTIVITIES
- ------------------
Citizens Savings Bank operates in Canton and adjacent communities. Its
principal business is utilizing savings deposits from the general public to
originate residential mortgage loans. Citizens Savings Bank is engaged, to a
limited extent, in making first mortgage loans on income-producing real estate,
second mortgage loans on one-to-two family residences, secured home
improvement loans, savings deposit secured loans, education loans, consumer
loans and credit card loans. Citizens Savings Bank's authorized lending area
is the entire United States. However, Citizens Savings Bank's principal
lending activity is in the areas in which its offices are located, which
encompasses almost all of Stark County, Ohio. Funds for lending activities are
obtained largely from savings deposits, loan repayments, advances from the
FHLB and other borrowings.
Mortgage loans on single-family dwellings are typically for terms of 10 to
30 years. These loans are often repaid prior to their contractual maturity
date by a sale by the borrower, by refinancing the property or by the
borrower's acceleration of periodic payments. Generally the loan-to-value
ratio does not exceed 95% of the appraised value of improved real estate.
Loans in excess of 95% of value may be made on security of single-family
dwellings only if such loans are insured or guaranteed by an agency of the
federal government. Private mortgage insurance is required for conventional
loans in an amount exceeding 80% of the appraised value. All loans are
approved by a loan committee consisting of members of senior management and
experienced lending personnel and loans are ratified by Citizens Savings Bank's
Board of Directors. Title insurance or certification, fire and casualty
insurance and appraisals are required on all mortgage loans.
Due to lower interest rates in 1993 and 1992, many borrowers converted
their adjustable rate loans into fixed rate loans. Set forth below are the
amounts and relative percentages of fixed rate and adjustable rate mortgage
loans at September 30, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate $ 395,710,077 78 % 381,631,531 76 % 341,935,925 70 %
Adjustable rate 108,398,332 22 120,184,314 24 149,443,235 30
--------------- ---- ------------ ---- ------------- ---
Total $ 504,108,409 100 % 501,815,845 100 % 491,379,160 100 %
=============== === ============ === ============ ===
</TABLE>
4
<PAGE> 5
To the extent that local loan demand has not met loan production goals,
loans and loan participations have been purchased from other financial
institutions and brokers throughout the United States. As of September 30,
1994, Citizens Savings Bank owned approximately $30,934,000 of purchased loans
and loan participations. The properties securing these loans are located
throughout the United States. As a result of the availability of
mortgage-backed securities, purchases of loans and loan participations have
been minimal in the last five years.
The following table sets forth the contractual maturities for the types of
loans and mortgage-backed securities indicated at September 30, 1994.
<TABLE>
<CAPTION>
One Year One Through Over
or Less Five Years Five Years Total
---------- -------------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 345 16,096 77,628 94,069
Mortgage loans:
Conventional
- Fixed rate 3,529 6,018 332,576 342,123
- Adjustable rate 1,441 3,884 94,856 100,181
Construction 1,048 5,918 20,681 27,647
Government insured
- Fixed rate 12 351 29,074 29,437
- Adjustable -- -- 4,720 4,720
Other loans 4,117 501 19,151 23,769
----------- ----------- ---------- ----------
Total $ 10,492 32,768 578,686 621,946
=========== =========== ========== ==========
</TABLE>
Due to the nature of Citizens Savings Bank's loan portfolio, loan
rollovers are an infrequent event. Citizens Savings Bank does not generally
grant short-term secured or unsecured loans that are subject to rollover
requests. In addition, Citizens Savings Bank does not grant short-term (5 to 7
year) balloon mortgage loans that might be subject to rollover requests.
Additional information on the mortgage-backed security and loan portfolio
is included in Notes 4, 5, and 6 of Notes to Consolidated Financial Statements
under Item 8 and Management's Discussion and Analysis of Financial Condition
and Results of Operations under Item 7.
A summary of Citizens Savings Bank's mortgage-backed security and loan
portfolio at the end of the last five years follows:
5
<PAGE> 6
CITIZENS SAVINGS BANK
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------------------------------
1994 1993 1992
---------------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC participation certificates $ 39,094,987 7 % 39,556,402 7 % 25,310,759 5 %
FHLMC participation certificates,
available for sale - - - - 48,073,935 8
FNMA participation certificates 51,818,189 9 40,038,491 7 -
FNMA participation certificates,
available for sale - - - - 14,945,717 3
GNMA participation certificates - - - - - -
GNMA participation certificates,
available for sale - - - - 2,899,711 -
Federated ARMS fund 3,155,742 - 3,090,379 - - -
------------- --- ------------ --- ----------- ---
94,068,918 16 82,685,272 14 91,230,122 16
------------- --- ------------ --- ----------- ---
Mortgage loans:
Conventional-fixed rate 341,881,153 57 321,809,497 55 282,811,812 48
Conventional-adjustable rate 100,180,840 17 113,370,013 19 137,504,404 23
Construction 27,647,006 4 25,944,699 5 23,765,655 4
FHA insured-fixed rate 18,200,224 3 21,581,697 4 25,373,492 4
FHA insured-adjustable rate 4,719,921 1 5,937,922 1 7,249,703 1
VA guaranteed 11,236,865 2 13,172,017 2 14,674,094 3
Loans available for sale 242,400 - - - - -
------------- --- ------------ --- ----------- ---
504,108,409 84 501,815,845 86 491,379,160 83
Less: Reserve for loan losses 2,566,176 - 2,553,479 - 1,775,669 -
Undisbursed loans
in process 17,015,740 ( 4) 18,015,260 ( 3) 14,463,985 ( 2)
Deferred loan fees and
discounts 2,891,725 - 3,110,586 ( 1) 3,152,097 ( 1)
------------- --- ------------ --- ----------- ---
481,634,768 80 478,136,520 82 471,987,409 80
------------- --- ------------ --- ----------- ---
Other loans:
Loans on savings deposits 1,972,536 - 2,189,840 - 2,267,125 -
Consumer loans 19,088,384 4 19,188,218 3 20,093,649 3
Educational loans,
available for sale 2,623,878 - 2,362,511 1 3,237,535 1
Lease financing 84,129 - - - 250,902 -
------------- --- ------------ --- ----------- ---
23,768,927 4 23,991,471 4 26,076,899 4
Less: Reserve for loan losses 159,410 - 138,663 - 121,661 -
Unearned discount 7,106 - 31,288 - 83,389 -
------------- --- ------------ --- ----------- ---
23,602,411 4 23,821,520 4 25,871,849 4
------------- --- ------------ --- ----------- ---
TOTAL LOANS $ 599,306,097 100% 584,643,312 100% 589,089,380 100 %
============= === ============ === =========== ===
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------
1991 1990
----------------------- -----------------------
<S> <C> <C>
Mortgage-backed securities:
FHLMC participation certificates 57,747,988 9 % 47,020,562 8 %
FHLMC participation certificates,
available for sale - - - -
FNMA participation certificates 16,832,931 3 - -
FNMA participation certificates,
available for sale - - - -
GNMA participation certificates 14,851,660 2 17,898,694 3
GNMA participation certificates,
available for sale 4,804,683 1 6,070,275 1
Federated ARMS fund - - - -
------------ --- ----------- ---
94,237,262 15 70,989,531 12
------------ --- ----------- ---
Mortgage loans:
Conventional-fixed rate 250,387,023 41 204,636,488 36
Conventional-adjustable rate 180,247,007 21 3,484,278 37
Construction 25,240,564 4 23,756,211 4
FHA insured-fixed rate 24,292,382 4 21,569,366 4
FHA insured-adjustable rate 8,063,860 1 8,803,740 2
VA guaranteed 16,278,151 3 17,219,106 3
Loans available for sale - - 583,251 -
------------ --- ----------- ---
504,508,987 83 490,052,440 86
Less: Reserve for loan losses 854,968 - 522,229 -
Undisbursed loans
in process 14,452,359 ( 2) 13,275,120 ( 2)
Deferred loan fees and
discounts 2,973,795 ( 1) 2,290,346 ( 1)
------------ --- ----------- ---
486,227,865 80 473,964,745 83
------------ --- ----------- ---
Other loans:
Loans on savings deposits 2,901,217 1 3,237,148 1
Consumer loans 20,456,442 3 17,682,645 3
Educational loans,
available for sale 5,971,714 1 6,245,260 1
Lease financing 1,212,233 - 456,876 -
------------ --- ----------- ---
30,541,606 5 27,621,929 5
Less: Reserve for loan losses 45,307 - - -
Unearned discount 252,919 - 88,956 -
------------ --- ----------- ---
30,243,380 5 27,532,973 5
------------ --- ----------- ---
TOTAL LOANS 610,708,507 100% 572,487,249 100 %
============ === =========== ===
Citizens Savings Bank does not have any material concentrations of loans with one borrower or with a group of similar borrowers.
</TABLE>
<PAGE> 7
RISK ELEMENTS
- -------------
CIVISTA has in place a system for asset review and classification that
complies with federal regulations. Federal regulations provide for the
classification of loans and other delinquent or problem assets as
"substandard", "doubtful" or "loss" assets. The regulations require insured
institutions to classify their own assets and to establish appropriate general
allowances for losses for assets classified "substandard" or "doubtful". For
assets or portions of assets classified "loss", an institution is required to
either establish specific allowances of 100% of the amount classified "loss" or
charge off such amount.
On a monthly basis, CIVISTA reviews loans, real estate owned and other
assets to identify and address delinquent or problem assets. Based upon
management's evaluation of these loans and problem assets, assets are
classified, if appropriate, as "substandard", "doubtful" or "loss" and
provisions for losses are recorded. In addition to providing general and
specific reserves on individual assets, CIVISTA establishes general reserves
for losses based upon the overall portfolio composition and general market
conditions.
Potential problem loans are those loans which have been fully or partially
classified as "substandard", "doubtful" or "loss" and are not loans past due 90
days. These loans may be current, delinquent less than 90 days or have a
history of late payments. Based on loan to value ratios and other factors,
CIVISTA has classified these loans.
The following table sets forth by categories all assets which have been
classified "substandard", "doubtful" or "loss":
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 725,749 1,636,480 1,704,553 2,531,831 1,974,499
Loan past due 90 days -- 1,291,655 -- -- --
Real estate owned 1,373,449 1,889,669 1,915,367 3,875,426 3,726,193
Restructured loan 279,343 293,904 -- -- --
Joint venture loans -- 476,633 611,633 611,633 2,104,321
Real estate development and
investment properties 8,220,121 583,394 2,057,857 -- --
-------------- ------------ ----------- ------------ ------------
10,598,662 6,171,735 6,289,410 7,018,890 7,805,013
Potential problem loans 3,387,660 5,175,950 6,461,904 2,334,461 3,490,838
-------------- ------------ ----------- ----------- -----------
Total $ 13,986,322 11,347,685 12,751,314 9,353,351 11,295,851
============== ============ ========== ========== ==========
</TABLE>
NON-ACCRUAL LOANS
- -----------------
At September 30, 1994, the non-accrual loans declined principally as a
result of the sale of a $661,578 loan on property in Santa Rosa Cove, La
Quinta, California.
It is Citizens Savings Bank's policy to reserve interest on any loan when,
in the opinion of management, such reserve is warranted (generally if principal
and/or interest are in default 90 days). This policy has the effect of
treating all loans which are past due 90 days as non-accrual. In addition,
loans are classified non-accrual when principal and accrued interest exceeds
the net realizable value of the underlying collateral and foreclosure is
anticipated.
Interest which was reserved is recognized in income upon collection.
At September 30, 1994, the gross interest income that would have been
reported during fiscal 1994 if the loans past due 90 days had been current in
accordance with their original terms was $60,254. Of this amount, $38,746 was
recorded in income as a result of payments.
7
<PAGE> 8
LOAN PAST DUE 90 DAYS
- ---------------------
At September 30, 1993, loans past due 90 days consisted of a $1.3 million
loan on an industrial manufacturing warehouse facility in Canton. Citizens
Savings Bank was paid in full when this property was sold as a result of
foreclosure proceedings.
REAL ESTATE OWNED
- -----------------
During 1994, the balance of real estate owned declined $516,220
principally as a result of sales of approximately $.6 million of single- family
homes, lots and undeveloped land.
RESTRUCTURED LOAN
- -----------------
In 1993, Citizens Savings Bank restructured the terms of a first mortgage
loan on a strip shopping center in Canal Fulton, Ohio.
JOINT VENTURE LOANS
- -------------------
At September 30, 1993, Citizens Savings Bank had a non-earning loan of
$476,633 to a CIVISTA-managed joint venture which constructed condominiums,
single-family homes and sold lots in La Quinta, California. During 1994,
Citizens Savings Bank charged off the $476,633 remaining balance.
REAL ESTATE DEVELOPMENT AND INVESTMENT PROPERTIES
- -------------------------------------------------
During 1994, CIVISTA classified 37 lots in a tract known as Enclave
Mountain Estates in La Quinta, California and a 12 acre tract which is located
near the Enclave Mountain Estates. These assets are further described under
"Subsidiary and Other Activities" and in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, under "Real Estate
Development Assets" and "Asset Review".
POTENTIAL PROBLEM LOANS
- -----------------------
The 1994 decrease of $1.8 million in potential problem loans reflects
third party refinancing of two apartment complexes, loan payoffs and improving
conditions which resulted in fewer loans being classified as problem assets.
At the most recent examination of Citizens Savings Bank conducted by the
Division of Savings and Loan Associations of the State of Ohio and the Office
of Thrift Supervision in March 1994, CIVISTA had no disagreements with the
examiners regarding the classification of assets.
8
<PAGE> 9
The following table provides an analysis of CIVISTA's reserves for losses
on loans, real estate owned, joint venture loans and real estate development
assets for the years shown.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 3,422,501 2,907,278 2,133,300 1,241,216 4,138,037
Amounts charged off:
Conventional loans 119,303 17,727 167,783 550,959 1,362,764
Construction loans -- -- -- -- 1,500,000
Other loans 9,887 15,223 160,641 -- --
Real estate owned 4,019 249,986 928,789 46,869 410,743
Joint venture loans 476,633 135,000 -- 979,365 1,446,894
Recovery of amounts
previously charged off:
Conventional loans -- 11,137 -- 6,250 --
Other loans -- -- 17,300 -- --
Real estate owned -- 55,397 -- -- --
Joint venture loans -- -- -- 6,543 38,167
Provision for losses 727,121 866,625 2,013,891 2,456,484 1,785,413
------------- ------------ ---------- ---------- ----------
Balance at end of year $ 3,539,780 3,422,501 2,907,278 2,133,300 1,241,216
============= ============ ========== ========== ==========
Net charge-offs to
average outstanding balance
of loans, real estate owned
and joint venture loans .12% .07% .24% .30% .92%
===== ===== ===== ===== =====
</TABLE>
The reserves for losses on loans, real estate owned and joint venture loans
were allocated as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Mortgage loans $ 2,566,176 2,553,479 1,775,669 854,968 522,229
Other loans 159,410 138,663 121,661 45,307 --
Real estate owned 436,194 440,213 634,802 1,057,879 192,241
Joint venture loans -- 140,146 225,146 175,146 526,746
Real estate development
assets 378,000 150,000 150,000 -- --
------------- ------------ ----------- ------------ ------------
Total $ 3,539,780 3,422,501 2,907,278 2,133,300 1,241,216
============= ============ =========== ============ ============
</TABLE>
9
<PAGE> 10
During 1994, Citizens Savings Bank provided $727,121 provision for losses.
This provision coupled with reduced charge-offs resulted in the reserves for
losses increasing to $3,539,780.
Management believes that the reserves are adequate and appropriate based
on the conditions that existed at September 30, 1994. Although management
believes that it uses the best information available to make such
determinations, future adjustments to reserves may be necessary, and net income
could be affected, if future circumstances differ substantially from the
information and assumptions used.
INVESTMENT ACTIVITIES
- ---------------------
CIVISTA and Citizens Savings Bank invest in various types of liquid
assets, including short-term United States Government and agency obligations,
certain certificates of deposits at insured banks and savings institutions,
certain bankers' acceptances and federal funds.
The carrying values of investment securities at the dates indicated are
summarized below:
<TABLE>
<CAPTION>
September 30,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
United States Government
and agency obligations $ 128,485,330 146,115,705 80,168,328
Ford Motor Credit note 5,000,000 5,000,000 --
FNMA and SLMA common stock, available for sale 13,587 18,792 19,120
-------------- ------------ ------------
Total $ 133,498,917 151,134,497 80,187,448
============== ============ ============
</TABLE>
The carrying value and weighted average yield of United States Government
and agency obligations at September 30, 1994 are summarized below:
<TABLE>
<CAPTION>
U.S. Treasury securities
and U.S. Government
agency obligations
------------------
Weighted Average
Amount Interest Yields
------ --------------------
<S> <C> <C>
Due in one year or less $ 38,973,610 4.28%
Due after one year through
five years 76,510,176 5.45%
Due after five years through
seven years 13,001,544 6.12%
---------------
Total $ 128,485,330
===============
</TABLE>
At September 30, 1994, CIVISTA did not hold any U. S. Government or agency
security with a maturity longer than seven years.
Additional information on CIVISTA's investment portfolio is included in
Note 3 of Notes to Consolidated Financial Statements under Item 8.
10
<PAGE> 11
As an Ohio-chartered savings and loan, Citizens Savings Bank is subject to
the provisions of Ohio law which govern a savings and loan association's
investments. Notwithstanding the authority provided under Ohio law, Citizens
Savings Bank is subject foremost to OTS regulations. The implementation of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
generally limits the equity investment activities of state-chartered savings
and loan associations. (See Regulation - Restrictions on State-Chartered
Savings Associations.)
SAVINGS ACTIVITIES
- ------------------
Citizens Savings Bank offers programs designed to attract short-term and
long-term savings deposits at rates and terms consistent with profitable
investment activities. Rather than pay unprofitable deposit rates, Citizens
Savings Bank, has been willing, if necessary, to let deposit balances shrink.
The deposit programs include passbook savings accounts, statement savings
accounts, club accounts, certificate of deposit accounts, money market
fund-competitive accounts, retirement accounts and interest-paying, negotiable
order of withdrawal ("NOW") checking accounts.
Citizens Savings Bank has never utilized brokered deposits.
The table set forth below summarizes average deposits and weighted average
rates for the years indicated.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Years Ended September 30,
--------------------------------------------------------
1994 1993 1992
--------------- -------------- --------------
Amount Rate Amount Rate Amount Rate
------- ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Transaction $ 132,410 2.4% 125,601 2.5% 107,183 3.5%
Savings 314,681 2.8 294,938 3.0 259,967 4.0
Certificates 240,892 4.7 252,444 4.9 296,398 6.0
----------- ---------- ---------
Total $ 687,983 672,983 663,548
=========== ========== =========
</TABLE>
The following table summarizes the certificates of deposit issued in
amounts of $100,000 or more as of September 30, 1994 by time remaining until
maturity.
(Dollars in Thousands)
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Maturing in:
Under 3 months $ 4,922
3 to 6 months 2,190
6 to 12 months 3,046
Over 12 months 8,355
----------
Total $ 18,513
==========
</TABLE>
Additional information on Citizens Savings Bank's savings activities is
included in Note 11 of Notes to Consolidated Financial Statements under Item 8.
BORROWINGS
- ----------
As a member of the FHLB, Citizens Savings Bank may borrow from the FHLB in
accordance with statutory authority and specific loan underwriting
considerations determined by Citizens Savings Bank. The policy on maximum
borrowings for purposes other than savings withdrawals varies from time to
time.
11
<PAGE> 12
At September 30, 1994 and 1993, Citizens Savings Bank's FHLB advances equaled
1.23% and 1.79% of CIVISTA's assets, respectively. See Note 12 in Notes to
Consolidated Financial Statements under Item 8.
In October 1991, CIVISTA borrowed $1,500,000 from an insurance company in
order to finance the Perry Hills Colony apartments. Interest is fixed at
10.375% and the loan matures in 2006.
CIVISTA borrowed $7,900,000 from an insurance company in 1991 in order to
refinance the Woodlawn Village and London Square apartment complexes. The
loans on these apartment complexes have monthly payments totalling $73,184.
Interest is fixed at 10.25% and the loans mature in 2005.
INTEREST RATE MARGINS
- ---------------------
CIVISTA's operating results depend primarily on the margin between the
income from earning assets and cost of funds.
The net yield on interest-earning assets (net interest earnings divided by
average interest-earning assets, with net interest earnings equalling the
difference between the dollar amount of interest earned and paid) was 3.86%,
4.16% and 3.94%, for the years ended September 30, 1994, 1993 and 1992,
respectively. Interest-earning assets were calculated based on a daily
interval.
During 1994, the net yield on interest-earning assets declined to 3.86%
from 4.16% in fiscal 1993. This decrease was caused by a .59% decline in the
yield on interest-earning assets compared to a .26% decline in the average
interest rate on interest-bearing liabilities. The much larger decline in
yield on interest-earning assets was only partially offset by the growth in
average interest-earning assets.
During 1993, the net yield on interest-earning assets grew from 1992's
record of 3.94% to a new record of 4.16%. In 1993, the net yield on
interest-earning assets grew .22% compared to the much larger increase of .77%
between 1991 and 1992. The 1993 increase in net yield was caused by two
factors. The first factor was a decline in average interest rate on
interest-bearing liabilities which was slightly larger than the decrease in
yield on average interest-earning assets as noted in the table below. 1993's
net yield also increased because the average balance of interest-earning assets
grew $26.4 million while average interest-bearing liabilities only grew $3.9
million.
<TABLE>
<CAPTION>
(Dollars in Thousands)
1994 1993 1992
--------------------- --------------------- -------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Total interest-
earning assets $ 755,239 7.08% 722,667 7.67% 696,237 8.73%
----------- ---- -------- ---- -------- ----
Total interest-
bearing liabilities $ 703,503 3.45% 683,864 3.71% 679,980 4.90%
=========== ==== ======== ==== ======== ====
</TABLE>
The following table sets forth for CIVISTA the average balances, interest
income/expense and average rates for the periods indicated.
12
<PAGE> 13
<TABLE>
THE CIVISTA CORPORATION
Average Balance Sheet, Interest Rates and Interest Differential
(Amounts in Thousands Except for Average Rates)
<CAPTION>
Years Ended September 30,
----------------------------------------------------------------------------------------
1994 1993
----------------------------------------- ---------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 14,687 -- -- 14,481 -- --
Short-term cash investments 10,826 372 3.44% 29,680 842 2.84%
Investment securities 146,772 7,294 4.97 104,304 5,327 5.11
Federal Home Loan Bank stock 5,381 282 5.25 5,605 252 4.50
Loans, net of undisbursed loans in process
and deferred loan fees and discounts 595,047 46,261 7.65 (1) 585,344 50,198 8.38 (1)
Less reserve for loan losses 2,787 -- -- 2,266 -- --
------------ ----------- ----------- --------
Net loans 592,260 46,261 7.68 (1) 583,078 50,198 8.41 (1)
Other assets 34,705 -- -- 33,501 -- --
------------ ----------- ----------- --------
Total assets $ 804,631 54,209 -- 770,649 56,619 --
============ =========== =========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Customer accounts:
Transaction $ 132,410 3,187 2.41 125,601 3,196 2.54
Savings 314,681 8,656 2.75 294,938 8,821 2.99
Certificates 240,892 11,250 4.67 252,444 12,326 4.88
------------ ----------- ----- ----------- -------- -----
Total customer accounts 687,983 23,093 3.36 672,983 24,343 3.62
Notes payable to Federal Home Loan Bank 6,447 268 4.15 1,699 64 3.76
Mortgage loans payable 9,073 944 10.41 9,182 955 10.41
Other liabilities 14,092 -- -- 9,846 -- --
Shareholders' equity 87,036 -- -- 76,939 -- --
------------ ----------- ----------- --------
Total liabilities and shareholders'
equity $ 804,631 24,305 -- 770,649 25,362 --
============ =========== =========== ========
Total interest-earning assets 755,239 54,209 7.08% (1) 722,667 56,619 7.67% (1)
============ =========== ===== =========== ======== =====
Total interest-bearing liabilities $ 703,503 24,305 3.45% 683,864 25,362 3 .71%
============ =========== ===== =========== ======== =====
Net yield on earning assets 29,904 3.86% (1) 31,257 4.16% (1)
=========== ===== ======== =====
<CAPTION>
Years Ended September 30,
----------------------------------
1992
----------------------------------
Average Average
Balance Interest Rate
------- -------- -------
<S> <C> <C> <C>
ASSETS
Cash 12,288 -- --
Short-term cash investments 36,011 1,603 4.45%
Investment securities 59,155 3,510 5.93
Federal Home Loan Bank stock 5,584 262 4.70
Loans, net of undisbursed loans in process
and deferred loan fees and discounts 596,785 56,116 9.28 (1)
Less reserve for loan losses 1,298 -- --
------ --------
Net loans 595,487 56,116 9.30 (1)
Other assets 47,082 -- --
------ --------
Total assets 755,607 61,491 --
====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Customer accounts:
Transaction 107,183 3,756 3.50
Savings 259,967 10,353 3.98
Certificates 296,398 17,694 5.97
-------- -------- -----
Total customer accounts 663,548 31,803 4.79
Notes payable to Federal Home
Loan Bank 7,022 519 7.39
Mortgage loans payable 9,410 972 10.33
Other liabilities 8,661 -- --
Shareholders' equity 66,966 -- --
-------- ------
Total liabilities and shareholders' equity 755,607 33,294 --
======== ======
Total interest-earning assets 696,237 61,491 8.73% (1)
======== ====== ======
Total interest-bearing liabilities 679,980 33,294 4.90%
======== ====== ======
Net yield on earning assets 28,197 3.94% (1)
====== ======
<FN>
The average balances presented above are calculated based on a daily interval.
(1) The average rate excludes the impact of deferred loan fees of $757, $1,163 and $740 in 1994, 1993 and 1992, respectively,
which were recognized in income upon the payoff of the underlying loans.
</TABLE>
<PAGE> 14
The following tables present certain information regarding changes in
interest income and interest expense of CIVISTA for the years ended September
30, 1994, 1993 and 1992, respectively. For each category of interest-earning
assets and interest-bearing liabilities, information is provided with respect
to changes attributable to (1) changes in volume (change in volume multiplied
by old rate) and (2) changes in rate (change in rate multiplied by old volume).
The net change attributable to the combined impact of volume and rate has been
allocated in proportion to the relationship of the absolute dollar amounts of
change in each.
<TABLE>
<CAPTION>
Fiscal 1994 Compared
to Fiscal 1993
Increase (Decrease)
-------------------------------------------
(Dollars in Thousands)
Volume Rate Net
------ ----- ----
<S> <C> <C> <C>
Interest on loans and mortgage-backed securities $ 737 ( 4,673) ( 3,936)
Interest on investments 2,115 ( 148) 1,967
Interest on other earning assets ( 706) 266 ( 440)
--------- --------- ---------
Total interest on interest-earning assets 2,146 ( 4,555) ( 2,409)
Interest on deposits 532 ( 1,782) ( 1,250)
Interest on borrowings 383 ( 190) 193
---------- --------- ---------
Total interest on interest-bearing liabilities 915 ( 1,972) ( 1,057)
---------- --------- ---------
Increase in net interest income $ 1,231 ( 2,583) ( 1,352)
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1993 Compared
to Fiscal 1992
Increase (Decrease)
------------------------------------------
(Dollars in Thousands)
Volume Rate Net
------ ---- ---
<S> <C> <C> <C>
Interest on loans and mortgage-backed securities $( 975) ( 4,943) (5,918)
Interest on investments 2,364 ( 547) 1,817
Interest on other earning assets ( 254) ( 517) ( 771)
---------- --------- --------
Total interest on interest-earning assets 1,135 ( 6,007) (4,872)
Interest on deposits 446 ( 7,907) (7,461)
Interest on borrowings ( 519) 48 ( 471)
---------- --------- --------
Total interest on interest-bearing liabilities ( 73) ( 7,859) (7,932)
---------- --------- -------
Increase in net interest income $ 1,208 1,852 3,060
========== ========= =======
</TABLE>
Classified assets are included in the average balances for the periods
presented. Loan interest, which has been reserved, has been excluded from the
average yields for the periods presented.
14
<PAGE> 15
ASSET/LIABILITY MANAGEMENT
- --------------------------
CIVISTA's interest rate risk management program is administered through
Citizens Savings Bank's Asset and Liability Committee ("ALCO"). In addition to
managing Citizens Savings Bank's exposure to changes in interest rates, ALCO
also monitors economic conditions, lending activity, savings activity and
liquidity.
Citizens Savings Bank is similar to many financial institutions in that
its interest-bearing liabilities mature or otherwise reprice faster than its
assets. Since liabilities reprice much faster than assets, a falling interest
rate environment will generally improve net interest income while a rising
interest environment will generally decrease net interest income.
The OTS has issued a regulation which adds an interest rate risk component
to the risk-based capital rule. This interest rate risk component is
predicated on the net portfolio value of an institution's assets, liabilities
and off balance sheet commitments under a range of interest rate scenarios.
The OTS calculates the change in net portfolio value due to an immediate
interest rate increase or decrease of 200 basis points.
Using September 30, 1994 data, the OTS calculated Citizens Savings Bank's
current net portfolio value at $76,466,000. With an instantaneous drop of 200
basis points, this net portfolio value grew $13,684,000 to $90,150,000. If
interest rates immediately rise 200 basis points, the OTS calculated that the
net portfolio value would drop $20,161,000 to $56,305,000. These calculations
reflect the fact that Citizens Savings Bank is subject to significant interest
rate risk.
Through its ongoing interest rate risk management program, Citizens
Savings Bank seeks to maintain interest rate risk at an acceptable level. This
program does not attempt to eliminate interest rate risk.
SUBSIDIARY AND OTHER ACTIVITIES
- -------------------------------
CSC owns and manages approximately 350 residential rental units in
apartment and duplex complexes which are primarily in the suburban Canton,
area. CSC owns a large portion of the Lakeview Office Condominium located in
the Belden Village area of Stark County, Ohio. Through its division, CIVISTA
Real Estate Company, CSC is engaged in property management for third parties.
CIC was incorporated in 1981 for residential real estate development in La
Quinta, California. During 1990, CIC acquired title to 40 acres of land in La
Quinta, California which are contiguous to the land developed by a
CIVISTA-managed joint venture. Approximately 28 acres have been developed into
54 residential lots. As of September 30, 1994, 17 lots have been sold and
closed. No plans have been finalized for the remaining acreage. In addition,
CIC is managing partner of a joint venture in La Quinta, California. In 1991,
the joint venture completed the sellout of its real estate inventory; however,
the joint venture will not be terminated until a remaining warranty issue is
resolved.
CIVISTA also owns CASNET, Crest Investments, Inc. and the Woodlawn Village
and London Square apartments. CASNET provides data processing services for
Citizens Savings Bank and other savings and loan associations in three states
through a service center in Canton, Ohio. In addition, CASNET develops
computer software for financial institutions, provides microfiche services,
interactive voice response technology and personal computer consulting. During
1992, CASNET entered the credit union on-line servicing market by purchasing
nine credit union contracts from Cascade Financial Services. Crest
Investments, Inc. owns Crest Insurance Agency, Inc., which sells securities and
tax-deferred annuities under an agreement with a registered broker/dealer.
Woodlawn Village and London Square are residential apartment complexes in
suburban Canton. The complexes contain 422 units.
15
<PAGE> 16
CERTAIN RATIOS
- --------------
The following table shows certain income and financial condition ratios of
CIVISTA for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net earnings as a percentage of:
Average assets 1.37% 1.70% 1.26%
Average shareholders' equity 12.69 16.99 14.27
Cash dividends as a percentage of net earnings 20.55 13.31 14.96
Average equity as a percentage of average assets 10.82 9.98 8.86
</TABLE>
The ratios shown above utilize averages calculated on a daily interval.
FEDERAL AND STATE TAXATION
- --------------------------
Federal income tax returns for CIVISTA and its subsidiaries are reported
on a consolidated basis. Savings and loan associations, such as Citizens
Savings Bank, which qualify by meeting certain definitional requirements
primarily relating to their asset investments and sources of income, are
permitted to establish a reserve for bad debts and to make annual additions
thereto. Such additions qualify as deductions from taxable income. A
qualifying savings and loan association may elect, annually, either of the
following two methods to compute its allowable bad debt deduction: (i) the
percentage of taxable income method or (ii) the experience method. Under the
percentage of taxable income method, the bad debt reserve deduction is computed
as 8% of taxable income. Each year Citizens Savings Bank utilizes the most
advantageous method available for that year. During the past several years,
Citizens Savings Bank has computed additions to its bad debt reserve under both
the percentage of taxable income and the experience methods. With the
corporate income tax rate at 35% for taxable income in excess of $10 million,
the marginal federal income tax rate for a savings and loan association using
the percentage of taxable income bad debt deduction is approximately 32%.
Earnings appropriated to bad debt reserves are not available for any other
purpose than to absorb losses. They are not available for the payment of cash
dividends or other distributions to shareholders, including distributions on
redemption, dissolution or liquidation, without payment of federal income taxes
by Citizens Savings Bank on such distribution at the then current tax rate.
However, such amounts added to the bad debt reserves for federal income tax
purposes may also be used to meet regulatory reserve requirements.
If an association's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
association may not deduct any addition to the bad debt reserve and generally
must include existing reserves in income over a four-year period. At September
30, 1994, over 95% of Citizens Savings Bank's total assets were specified
assets.
Additional information on the application of federal income taxes is
contained in Notes 14 and 15 of Notes to Consolidated Financial Statements
under Item 8.
During 1994, 1993 and 1992, Ohio taxed financial institutions at the rate
of $1.50 per $100 of shareholders' equity.
16
<PAGE> 17
COMPETITION
- -----------
Citizens Savings Bank actively competes with other savings and lending
institutions in central and western Stark County. Competition for savings
comes principally from other savings and loan associations, commercial banks,
credit unions located in its primary market area and brokerage house money
market and other funds. The primary factors in competing for savings are
interest rates paid on deposits and convenience of office hours and locations.
During periods when money market rates are relatively high, obligations offered
by governments, government agencies and other entities seeking funds add
significantly to competition for savings.
Citizens Savings Bank's principal competition for loans is provided by
other savings and loan associations, commercial banks, mortgage companies,
governmental agencies and, to a lesser extent, credit unions. The primary
factors in loan competition are interest rates, extent and time interval of
interest rate adjustments, origination charges and convenience of office
location for applications, closing and servicing.
EMPLOYEES
- ---------
On September 30, 1994, CIVISTA and its subsidiaries employed approximately
298 full-time and 57 part-time employees. None of the employees is represented
by a union or collective bargaining group. Management considers its relations
with employees to be excellent. Employee benefit programs are considered by
management to be competitive with benefits provided by other savings
associations and major employers within the normal operating area.
REGULATION
- ----------
SAVINGS AND LOAN HOLDING COMPANY LAW
- ------------------------------------
CIVISTA is a non-diversified, unitary savings and loan holding company
within the meaning of the Savings and Loan Holding Company Act (the "Holding
Company Act"), as amended by FIRREA, is registered with the OTS and is subject
to OTS regulations, examinations, supervision and reporting requirements.
As a unitary savings and loan holding company, CIVISTA generally is
permitted to engage in activities that are unrelated to the activities of
Citizens Savings Bank, provided that Citizens Savings Bank continues to
qualify as a "domestic building and loan association" under the Internal
Revenue Code and as a "Qualified Thrift Lender" ("QTL").
REGULATION OF SAVINGS ASSOCIATIONS
- ----------------------------------
CAPITAL REQUIREMENTS The OTS has established capital regulations based on
minimum tangible capital, minimum leverage limit and risk- based capital. The
capital requirements are designed to be "no less stringent than capital
standards applicable to national banks." Citizens Savings Bank is in full
compliance with these capital requirements. See Management's Discussion and
Analysis of Financial Condition and Results of Operations under Item 7 and Note
15 of Notes to Consolidated Financial Statements under Item 8.
Savings associations must generally maintain minimum tangible capital of
1.5 percent of total assets. Tangible capital consists of common shareholders'
equity, noncumulative perpetual preferred stock and related surplus and
minority interest in consolidated subsidiaries less goodwill and certain other
intangible assets.
The leverage ratio requirement mandates capital of 3 percent of total
assets subject to certain adjustments.
17
<PAGE> 18
For the risk-based capital requirement, the OTS assigned risk weighting
factors to all assets and certain commitments. Savings institutions must
maintain capital at 8 percent of these risk weighted assets. The OTS issued a
final regulation adding an interest rate risk component to the risk-based
regulatory capital requirement. This regulation began affecting capital
calculations on September 30, 1994.
On December 19, 1992, the prompt corrective action regulations of the
Federal Deposit Insurance Corporation Improvement Act became effective. These
regulations define specific capital categories based on an institution's
capital ratios. The capital categories are "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized" and
"critically undercapitalized". Institutions categorized as "undercapitalized"
or worse are subject to certain restrictions, including the requirement to file
a capital plan with the OTS, prohibitions on the payment of dividends and
management fees, restrictions on executive compensation and increased
supervisory monitoring, among other things. Other restrictions may be imposed
on the institution either by the OTS or by the FDIC, including requirements to
raise additional capital, sell assets or sell the entire institution. Once an
institution becomes "critically undercapitalized" it is generally placed in
receivership or conservatorship within 90 days.
To be considered "well capitalized", an institution must generally have a
leverage ratio of at least 5 percent, a Tier 1 (core capital) risk-based
capital ratio of at least 6 percent, and a total risk-based capital ratio of at
least 10 percent.
At September 30, 1994, Citizens Savings Bank exceeded all regulatory
capital requirements.
DEPOSIT INSURANCE SYSTEM Savings deposit accounts in Citizens Savings
Bank are insured by the FDIC through SAIF to the maximum amount permitted by
law. Although the FDIC manages both SAIF and the Bank Insurance Fund ("BIF"),
the two funds are administered separately and their resources may not be
commingled.
On January 1, 1993, the FDIC enacted a risk-based deposit insurance
premium system with premiums ranging from 23 cents to 31 cents per $100 of
deposits. In general, SAIF is required to build and maintain reserves at a
level of 1.25% of insured deposits. This designated reserve ratio may be
raised up to 1.50% if the FDIC board determines that the increase is
"justified by circumstances that raise a probable risk of substantial future
losses" to SAIF. FDIC is permitted to semiannually raise premiums for banks
and savings institutions as high as necessary.
If a savings institution fails to meet its required regulatory net worth,
the FDIC and the OTS may cause the institution to take such actions as the FDIC
and the OTS may deem appropriate for the protection of the SAIF or the
institution.
TRANSFERS BETWEEN INSURANCE FUNDS Beginning in 1994, conversions between
the BIF and SAIF funds will be permitted with the prior consent of the FDIC and
the payment of both an entrance and exit fee. The exit fee to leave the SAIF
fund is 90 cents for every $100 of insured deposits. The entrance fee to join
the BIF fund is based on the BIF reserve ratio at the time of conversion.
QUALIFIED THRIFT LENDER TEST Savings associations are required to comply
with the requirements of the QTL test. Savings institutions that fail to
comply with the QTL test will either have to convert to a bank charter or will
have limits placed on their activities, branching authority, FHLB advances and
dividend payments. If the savings association subsidiary of a unitary savings
and loan holding company fails to meet the QTL test, then such unitary holding
company will become subject to the activities restrictions applicable to
multiple holding companies and ultimately to the activities restriction
applicable to bank holding companies.
An insured savings association is required to maintain 65 percent of its
assets in designated "qualified thrift investments". The list of qualified
thrift investments includes principally housing-related assets such as mortgage
loans, home improvement loans, home equity loans, residential mortgage-backed
securities and FHLB stock.
18
<PAGE> 19
FEDERAL HOME LOAN BANK ADVANCES The Federal Housing Finance Board has
adopted a rule which ties continued access to long-term FHLB advances to how
well an institution meets community investment needs. Once every two years,
FHLB member institutions will be required to submit a community support
statement. These reports will include an institution's Community Reinvestment
Act ("CRA") evaluation, information on how first-time buyers were assisted and
a description of other community investment support. Long-term advances may
only be used for the purpose of providing funds for housing finance.
BANK HOLDING COMPANY ACQUISITION OF HEALTHY SAVINGS ASSOCIATIONS FIRREA
permits bank holding companies to acquire any savings association regardless of
whether the savings association is healthy or unhealthy.
TRANSACTIONS WITH AFFILIATES Savings associations follow the affiliate
rules as set forth in Sections 23A, 23B and 22(h) of the Federal Reserve Act
subject to additional limitations in FIRREA and as adopted by the Director of
the OTS. The FIRREA definition of affiliate excludes service corporation
subsidiaries of the savings association. Sections 23A and 23B generally do not
require prior regulatory approval of transactions but provide that:
o "Covered transactions", which include loans, purchase of assets,
acceptance of affiliate securities as collateral and the issuance
of guarantees and letters of credit cannot exceed 10% of capital
and surplus in the aggregate with any one affiliate. The
aggregate limit with all affiliates is limited to 20% of capital
stock and surplus.
o Certain covered transactions must be secured by collateral having
a market value equal to between 100% and 130% of the transactions.
o Generally low-quality assets may not be purchased.
o Covered transactions and most other transactions such as sales of
assets or contracts for services must be on terms that are
equivalent to those available to unrelated parties.
FIRREA provides that a savings association may not make a loan or
extension of credit to an affiliate unless the affiliate is only engaged in
activities which the FRB has determined are permissible for bank holding
companies.
LOANS TO ONE BORROWER LIMITATION The loans to one borrower limitations
applicable to thrifts are generally the same as those for national banks,
subject to certain exceptions for residential construction lending. Generally,
a savings association cannot lend more than 15% of the institution's unimpaired
capital and surplus to one borrower. An additional 10% can be loaned to a
borrower if the loans are fully secured by readily marketable collateral. Real
estate is not included within the definition of readily marketable collateral.
However, an association meeting the fully phased-in capital rules may lend 30%
of its unimpaired capital and surplus to one borrower to construct certain
residential housing units.
Citizens Savings Bank has not utilized the exception permitting higher
loans to one borrower lending limits for residential construction lending. At
September 30, 1994, Citizens Savings Bank's general loans to one borrower limit
was approximately $9.3 million. At September 30, 1994, the largest amount of
outstanding loans in the aggregate to one borrower was approximately $7.2
million.
LOANS TO INSIDERS Savings associations are subject to the restrictions
contained in the Federal Reserve Board's Regulation O on loans to directors,
executive officers, principal shareholders and certain of their related
interests. Extensions of credit to executive officers, directors, principal
shareholders or their related interests cannot be made on preferential terms.
Citizens Savings Bank has adopted a policy requiring advance Board of Director
approval for all requests for extension of credit by insiders. Loans by
Citizens Savings Bank to any director, executive officer, principal shareholder
or to any related interest of such person cannot exceed the limits established
by the OTS on loans to a single borrower when aggregated with all loans to such
person and their related interests.
19
<PAGE> 20
CAPITAL DISTRIBUTION REGULATION Limitations are imposed upon all
"capital distributions" by savings associations, including cash dividends,
payments to repurchase or otherwise acquire its shares, payments to
shareholders of another association in a cash-out merger and other
distributions charged against capital. The regulation establishes a
three-tiered system of regulation, with the greatest flexibility being afforded
to well-capitalized associations such as Citizens Savings Bank. The regulation
also provides the OTS with the authority to prohibit capital distributions
otherwise permitted by this rule if such distribution would constitute an
unsafe or unsound practice.
An association that has capital that is at least equal to its fully
phased-in capital requirement and that has NOT been advised by the OTS that it
is in need of more than normal supervision is a Tier 1 association ("Tier 1
Association"). Citizens Savings Bank is a Tier 1 Association. An association
that has capital at least equal to its minimum regulatory capital requirement,
but less than its fully phased-in capital requirement, is a Tier 2 association
("Tier 2 Association"). An association having capital that is less than its
minimum regulatory capital requirement is a Tier 3 association ("Tier 3
Association").
A Tier 1 Association such as Citizens Savings Bank can, upon 30 days
notice to the OTS, make capital distributions during a calendar year in an
amount up to 100% of its net income to date during the calendar year plus the
amount that would reduce its "surplus capital ratio" (the percentage by which
the ratio of its capital to assets exceeds the ratio of its fully phased-in
capital requirement to assets) by one-half of its surplus capital ratio at the
beginning of the calendar year, as adjusted to reflect its net income to date
during the year. Any additional amount of capital distributions will require
prior regulatory approval.
Citizens Savings Bank's ability to pay future cash dividends to CIVISTA is
also limited by a dividend agreement with the OTS. Under its dividend
agreement, as long as Citizens Savings Bank exceeds its fully phased-in capital
requirement, Citizens Savings Bank can dividend 100 percent of its net income
for the prior eight quarters less cumulative dividends paid for such prior
eight quarters.
A Tier 2 Association can make a capital distribution, upon 30 days notice
to the OTS. If the association's current capital satisfies the 8% risk-based
capital standard, it may make distributions up to 75% of net income over the
most recent four quarters.
A Tier 3 Association is not authorized under the regulation to make any
capital distributions unless it receives prior regulatory approval, or in the
case of an association operating in compliance with an approved capital plan,
the distribution is consistent with such approved capital plan.
FEDERAL HOME LOAN BANK SYSTEM
- -----------------------------
The twelve district Federal Home Loan Banks are the central credit source
for member institutions.
As a member of the FHLB of Cincinnati, Citizens Savings Bank is required
to acquire and hold shares of stock in that Bank in an amount at least equal to
1% of the aggregate principal amount of its unpaid home mortgage loans, home
purchase contracts, and similar mortgages at the beginning of each calendar
year, or one-twentieth of its unpaid borrowings from the FHLB of Cincinnati,
whichever is greater.
LIQUIDITY REQUIREMENTS
- ----------------------
The OTS currently requires a member savings and loan association to
maintain liquid assets (cash, certain time deposits, banker's acceptances and
specified United States Government, state or federal agency obligations) equal
to a monthly average of at least 5% of its net withdrawable savings deposits
plus short-term borrowings. This liquidity requirement may be changed from
time to time by the OTS to an amount within the range of 3% to 10%. Monetary
penalties may be imposed for failure to meet liquidity requirements. Citizens
Savings Bank has consistently exceeded its liquidity requirements. At
September 30, 1994, Citizens Savings Bank's liquidity ratio was 19.9%.
20
<PAGE> 21
FEDERAL RESERVE
- ---------------
The Monetary Control Act of 1980 imposed Federal Reserve requirements on
all depository institutions that maintain transaction (NOW) accounts and/or
non-personal time deposits. Citizens Savings Bank has met its reserve
requirements throughout the fiscal year ended September 30, 1994.
The Monetary Control Act also requires that the Federal Reserve System's
lending facility be made available to savings and loan associations on the same
basis as that enjoyed by System member commercial banks. Accordingly, Citizens
Savings Bank is authorized to borrow funds from the Federal Reserve under
conditions prescribed from time to time by the System's Board of Governors.
COMMUNITY REINVESTMENT ACT
- --------------------------
The CRA requires financial institutions to help meet the credit needs of
its entire community, including low- and moderate-income neighborhoods. The
CRA encourages financial institutions to develop the types of products and
services which it believes are best suited to its own community.
The OTS is required as part of its examination process to assess the
institution's record of meeting the credit needs of its entire community and
lending to first time home buyers. The OTS prepares a written evaluation of
the institution's compliance with the CRA using a four-tiered rating system
consisting of the terms "outstanding", "satisfactory", "needs to improve" and
"substantial noncompliance". During its last exam, the OTS rated Citizens
Savings Bank's compliance with the CRA as "outstanding".
INTERNAL CONTROL AND COMPLIANCE REPORTING
- -----------------------------------------
As a result of FDICIA, all financial institutions have new internal
control and compliance reporting requirements which apply to financial
statements for years ending after December 31, 1993. Beginning in fiscal 1994,
Citizens Savings Bank's management is required to prepare an annual report on
the internal controls over financial reporting of the institution. This report
is provided by management, attested to by the chief executive and financial
officers and publicly available. Management must also report on the
institution's compliance with a designated set of laws and regulations. These
laws and regulations govern loans to insiders and dividend restrictions. The
institution's external auditor must provide an attestation report on
agreed-upon procedures covering compliance with these laws and regulations.
RESTRICTIONS ON STATE-CHARTERED SAVINGS ASSOCIATIONS
- ----------------------------------------------------
Effective January 1, 1990, FIRREA applied new restrictions that affected
state-chartered institutions. As of that date, state-chartered savings
associations were prohibited from directly engaging in any activity or in any
activity in an amount impermissible for a federal savings association unless
(1) the savings association was, and continues to be, in compliance with the
fully phased-in capital standards and (2) the FDIC determines that the activity
would not pose a significant risk to the deposit insurance fund.
If an activity is permissible for a federal savings association, a
state-chartered savings association may engage directly in that activity in an
amount greater than that allowed a federal institution if (1) the savings and
loan association was, and continues to be, in compliance with the fully
phased-in capital standards, (2) the FDIC determines that engaging in the
greater amount of the activity would not pose a significant risk to the deposit
insurance fund and (3) the activity does not involve nonresidential real
property loans.
FIRREA prohibits a state-chartered savings association from directly
acquiring or retaining any equity investment of a type or in an amount not
permitted for a federal savings association. If a state-chartered institution
is in compliance with the fully phased-in capital standards and the FDIC
determines there is no significant risk, an institution may acquire or retain
service corporation investments that are not otherwise permitted if the
institution complies with certain FDIC application requirements.
21
<PAGE> 22
STATE REGULATION
- ----------------
CIVISTA is subject to certain regulations imposed under Ohio law and
Citizens Savings Bank is regulated by the Superintendent of Savings and Loan
Associations of Ohio. The Ohio Superintendent has the right to examine the
books and records of CIVISTA and may also enter into cooperative agreements
with other state and federal savings and loan regulatory authorities to
facilitate the examination of Citizens Savings Bank. The Superintendent may
accept the reports of examinations and other records from such other
authorities in lieu of conducting the Superintendent's own examination of such
savings and loan holding companies. The Superintendent may take any action
jointly with other regulatory agencies having concurrent jurisdiction over such
savings and loan holding companies or may take action independently in order to
carry out the Superintendent's responsibilities under Ohio law. The
Superintendent may require any savings and loan holding company that has
acquired an Ohio savings and loan association to submit such reports to the
Superintendent as may be determined to be necessary or appropriate.
The approval of the Superintendent is required for the declaration of
dividends by Citizens Savings Bank to CIVISTA if the total of all such
dividends declared in any fiscal year exceeds the total of its net profits of
that year combined with the retained net profits of the preceding two years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock.
Under Ohio law, restrictions also exist with respect to the acquisition of
a controlling interest in a savings and loan holding company or a savings and
loan association. Under Ohio law, no person or entity can, directly or
indirectly, acquire a controlling interest (greater than a 15% stock ownership
interest) in a savings and loan holding company or a savings and loan
association without the prior written approval of the Superintendent of Savings
and Loan Associations of Ohio.
22
<PAGE> 23
ITEM 2. PROPERTIES
PROPERTIES USED IN SAVINGS AND LOAN OPERATIONS
- ----------------------------------------------
The operations of CIVISTA and Citizens Savings Bank are conducted through
its principal office located in leased space in Canton. The principal building
lease expires in 2003 and includes options to renew for an additional 25 years.
Citizens Savings Bank's loan origination office is in the CIVISTA Building
located in suburban Canton. At September 30, 1994, Citizens Savings Bank had 9
additional branch offices in Stark County of which 4 were owned and 5 leased.
Citizens Savings Bank constructed an additional office in Stark County which is
owned and was opened in October 1994.
CASNET
- ------
CASNET operates out of the CIVISTA Building.
OTHER PROPERTIES
- ----------------
CIVISTA owns two residential communities located in Jackson and Perry
Township, both near the western corporate limits of the city of Canton.
Woodlawn Village includes 198 apartments and townhouses with recreational
facilities for common use by the tenants. The second property, London Square,
consists of 224 apartments and townhouses, and recreational facilities.
The principal asset of CSC is Perry Hills Colony which is located in
Canton and which consists of 140 apartments and townhouses, 6 one- story
duplexes and recreational facilities. CSC also owns Diamond Estates which
consists of 49 duplexes. CSC has other properties which it owns and manages
which are located in the general Stark County area.
CIC is engaged in marketing residential lots in La Quinta, California.
CIC acquired 40 acres of land in La Quinta, California. CIC has developed
approximately 28 acres into 54 residential lots. As of September 30, 1994, 17
lots have been sold and closed. Plans have not been finalized for the
remaining acreage. These properties are further described in "Subsidiary and
Other Activities" under Item 1 and in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, under "Real Estate
Development Assets" and "Asset Review".
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, relating to CIVISTA and its
subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter ended September 30, 1994.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
CIVISTA common shares are traded over-the-counter. Although it is not
actively traded, the stock has an established public market through two
brokerage firms which make a market in CIVISTA common shares. Approximate
prices for the last two years are shown below as quoted in the local daily
newspaper by McDonald & Company Securities, Inc. This firm is a member of the
New York Stock Exchange and other exchanges.
23
<PAGE> 24
The following bid prices reflect inter-dealer prices without adjustments
for retail markups, markdowns, or commissions and may not represent actual
transactions. The bid prices and the per share data reflect the two-for-one
stock split of November 22, 1993.
<TABLE>
<CAPTION>
PER SHARE
QUARTER BIDS CASH DIVIDENDS BOOK
ENDING HIGH LOW DECLARED VALUE
<S> <C> <C> <C> <C>
12/31/92 $ 16.25 15.00 .08 3/4 21.19
.15 extra
03/31/93 20.00 16.25 .08 3/4 22.16
06/30/93 21.00 20.00 .08 3/4 23.07
09/30/93 22.50 21.00 .08 3/4 23.80
12/31/93 26.00 22.50 .10 24.28
.25 extra
03/31/94 28.50 26.00 .10 24.99
06/30/94 32.00 28.50 .10 25.61
09/30/94 38.50 32.00 .10 26.24
</TABLE>
As of September 30, 1994, CIVISTA had 497 shareholders of record.
24
<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
FOR THE YEAR:
<S> <C> <C> <C> <C> <C>
Total interest income $ 54,209 56,619 61,491 63,445 61,692
Total interest expense 24,304 25,362 33,294 41,646 41,299
--------- --------- -------- -------- ---------
Net interest income 29,905 31,257 28,197 21,799 20,393
Provision for loan losses 163 817 1,308 923 1,417
Provision for real estate losses 564 50 706 1,534 368
Investment security gains, net 729 1 4 413 --
Gains on sales of mortgage loans
and mortgage-backed securities, net 38 2,387 708 160 188
Net earnings (note 1) 11,048 13,072 9,557 6,214 4,360
Net earnings per share (note 2) 3.02 3.64 2.71 1.80 1.26
Cash dividends per share (note 2) .65 .50 .41 1/4 .33 3/4 .35
Increase (decrease) in
customer accounts ( 5,438) 22,182 10,676 24,214 10,309
Loans originated 119,301 113,280 96,673 84,445 99,116
Loans purchased 27,701 67,305 35,188 61,314 13,077
AT YEAR END:
Assets 798,416 799,015 750,680 741,587 706,456
Total mortgage-backed securities and
loans receivable, net 599,306 584,643 589,089 610,709 572,487
Cash and cash investments 25,395 19,190 36,682 53,760 27,848
Investment securities 133,499 151,134 80,187 28,588 55,272
------- ------- ------- ------- -------
Total 158,894 170,324 116,869 82,348 83,120
Federal Home Loan Bank stock 5,284 5,618 5,723 5,319 5,104
Customer deposits 678,631 684,069 661,887 651,211 626,997
Notes payable and other borrowings 18,822 23,461 9,588 18,783 13,443
Shareholders' equity 91,781 82,961 71,468 63,178 58,005
Shareholders' equity per
share (note 2) 26.24 23.80 20.63 18.35 16.82
Shareholders' equity as % of assets 11.5 % 10.4 % 9.5 % 8.5 % 8.2 %
Number of offices 10 10 10 10 10
NOTE 1 - In 1991, $911,719 of net earnings resulted from a favorable settlement of certain tax issues with the IRS.
NOTE 2 - Net earnings per share is based upon the weighted average number of common shares and common share equivalents
outstanding during each period. Net earnings per share, cash dividends per share and shareholders' equity per share
reflect the two-for-one stock split of November 22, 1993.
</TABLE>
25
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following provides an overview of CIVISTA's financial condition, results of
operations and capital adequacy.
FINANCIAL CONDITION
LENDING
In addition to the primary business of granting first mortgage loans,
CIVISTA's lending activity includes short-term consumer financing, loans for
education and equity lines of credit. CIVISTA endeavors to maintain high loan
standards in underwriting all of these types of loans. CIVISTA's first
mortgage lending is primarily restricted to single-family residences.
CIVISTA is an equal housing lender and is committed to serving the credit
and housing needs of its primary marketing area. During 1993, CIVISTA created
the position of Affordable Housing Loan Originator in order to attract greater
numbers of low and moderate income and minority applicants. During the years
ended September 30, 1994 and 1993, CIVISTA originated $39.6 million and $42.6
million, respectively, in mortgage loans to Stark County borrowers with low and
moderate incomes (considered to be up to 115% of the Stark County median
income). This represented almost 43% of the total number of mortgage loans and
equity lines of credit closed and over 32% of the total mortgage dollars loaned
during the most recent year.
CIVISTA actively promotes the health and vitality of the communities which
it serves. This is evidenced by special loan programs, a strong marketing
outreach, credit counseling programs, and nearly 300 lower priced rental units
owned by CIVISTA which are located in southwest and northeast Canton and in
Alliance. CIVISTA's directors, officers and employees give of their time and
energy in many civic activities in order to strengthen the communities in
CIVISTA's market.
During its most recent Community Reinvestment Act examination, CIVISTA
received an "outstanding" rating which is the highest possible rating.
Lending activity in 1994 was very strong through May when increased
interest rates seemed to dampen the real estate market. Most of CIVISTA's
customers continued to select fixed rate loans. Few borrowers were willing to
accept an adjustable rate loan and CIVISTA has been unwilling to offer "teaser"
rates to obtain adjustable rate loans. During 1994, borrowers refinanced loans
totalling $16.6 million. This was a $13.6 million drop from the $30.2 million
which was refinanced in 1993, as a result of falling interest rates.
CIVISTA's mortgage loan originations in 1994 totalled a record $102.7
million which exceeded the previous record of $97.9 million which had been
achieved in 1993. In spite of record originations, mortgage loans grew only
.7% or $3.3 million in 1994. Originations were barely enough to offset
payoffs, principal reductions, customers who refinanced with other lenders and
CIVISTA's decision to sell approximately $8.0 million of thirty-year fixed rate
loans. By selling these loans, CIVISTA was able to reinvest the proceeds in
shorter term products and better match its assets and liabilities.
Fixed rate loans continued to become a larger portion of the loan
portfolio. Fixed rate loans increased approximately $14.1 million during 1994
while adjustable rate loans decreased approximately $11.8 million. During 1993,
fixed rate loans increased approximately $39.7 million while adjustable rate
loans declined approximately $29.3 million. At September 30, 1994, fixed rate
loans amounted to 78% of mortgage loans.
26
<PAGE> 27
CIVISTA has been successful over the last three years in originating a
larger portion of loans with fifteen-year or shorter maturities instead of the
traditional thirty-year loan. During 1994 and 1993, respectively,
approximately 50% and 56% of mortgage loan originations were for fifteen-year
or shorter terms. Shorter maturities were attractive to many borrowers because
these loans carried slightly lower interest rates than longer maturities. The
shorter maturities of these loans are advantageous to CIVISTA since they
materially reduce the average life of the mortgage loan portfolio. These
shorter maturity loans better match CIVISTA's customer deposit liabilities and
provide a higher level of amortization than thirty-year loans. If interest
rates continue to rise, CIVISTA believes that borrowers will prefer thirty-year
loans which have lower monthly payments than shorter term loans.
At September 30, 1992, CIVISTA classified all of its mortgage-backed
securities, except those with five-year balloon maturities, as available for
sale. CIVISTA classified mortgage-backed securities with carrying values of
approximately $65.9 million as available for sale in order to provide
flexibility in responding to interest rate changes. In 1993, as interest rates
continued to decline these mortgage-backed securities experienced rapid
prepayments. While CIVISTA held these mortgage-backed securities, the high
level of refinancing combined with normal principal payments reduced the
mortgage-backed security balance by $13.6 million. During February and June
1993, CIVISTA sold $25.4 million and $16.7 million, respectively, of
mortgage-backed securities. In July 1993, CIVISTA sold the remaining $10.2
million of mortgage- backed securities. These sales resulted in gains of
approximately $2.4 million.
1993 reflects the prepayment risk which is inherent in mortgage-backed
securities and mortgage loans. In periods of declining interest rates, many
borrowers refinance. As a result, mortgage loans and mortgage-backed
securities prepay at rates that are far faster than normal amortization.
CIVISTA continually monitors the prepayment speed of mortgage loans and
mortgage-backed securities.
During 1994 and 1993, CIVISTA purchased $27.7 million and $65.4 million,
respectively, of mortgage-backed securities. These mortgage- backed
securities have five-, seven- and ten-year maturities and are held for
investment. These purchases met CIVISTA's strategy of acquiring shorter term
market rate mortgage-backed securities.
During December 1991, CIVISTA analyzed the weighted average lives of the
mortgage-backed security portfolio. All mortgage-backed securities with a
weighted average life in excess of six years were transferred into the
available for sale category. These mortgage-backed securities had weighted
average lives of six to twenty-one years and a composite weighted life over
twelve years. During February and March 1992, CIVISTA sold these longer-term
mortgage-backed securities which had book values totalling $25.8 million and
recorded net gains of $.7 million. During the second and third quarters of
1992, CIVISTA purchased $34.9 million of five- and seven-year balloon
mortgage-backed securities. As a result, CIVISTA was able to better match its
assets and liabilities by shortening the life of this group of assets from
beyond twelve years to a much shorter period.
As a result of CIVISTA's acquisitions of five-, seven- and ten-year
mortgage-backed securities, at September 30, 1994, 97% of CIVISTA's
mortgage-backed securities mature in less than ten years. The weighted average
life of the mortgage-backed security portfolio was slightly over 3.6 years at
September 30, 1994.
During 1994, other loans decreased principally as a result of the sale of
$1.6 million of college loans. Due to processing requirements on these loans,
CIVISTA has adopted the policy of selling education loans before payments
commence.
CUSTOMER DEPOSITS
CIVISTA continues to follow the policy of seeking deposits on rates and
terms which will support profitable investment opportunities. Rather than pay
unprofitable rates, CIVISTA has been willing, if necessary, to let deposit
balances shrink. Customer account balances decreased during 1994 by
approximately $5.4 million as a result of interest credits of $23.1 million
which were offset by net cash outflows of $28.5 million.
27
<PAGE> 28
Interest rates also continued to impact the composition of CIVISTA's
customer deposits. As interest rates declined in 1992 and 1993, customers
shifted their maturing certificates of deposit into savings and transaction
accounts. This trend continued in 1994 on a very slight scale. During 1994,
certificates of deposit fell from 36.4% of total customer deposits to 35.6%.
In fiscal 1993, certificates of deposit fell from 40.0% to 36.4% of total
customer deposits. Savings accounts grew from 45.3% at the beginning of 1994
to 45.5% of customer deposits at September 30, 1994, and transaction accounts
grew from 18.3% to 18.9%. During fiscal 1993, savings accounts grew from 42.5%
to 45.3% of customer deposits while transaction accounts grew from 17.5% to
18.3% of customer deposits.
LIQUIDITY
CIVISTA's cash, short-term cash investments, and investment securities are
monitored to help ensure that sufficient liquidity exists to cover potential
cash requirements. CIVISTA also has available additional sources of liquidity
which include customer deposits, loan repayments and borrowing from the Federal
Home Loan Bank.
Throughout 1994, CIVISTA's cash, short-term cash investments and
investment securities averaged $172.3 million or 21.4% of average assets. In
1994, liquidity was higher than planned due to cash flows in excess of loan
demand. In 1993, liquidity averaged $148.5 million or 19.3% of average assets.
CIVISTA has been maintaining a higher than normal portfolio of liquid assets as
a hedge against the rise in interest rates. If interest rates continue to
rise, the yields on liquid assets will adjust quickly and help offset increased
interest on customer deposits.
REAL ESTATE INVESTMENT PROPERTY
CIVISTA owns and manages residential rental properties. At year-end,
CIVISTA owned approximately 770 residential rental units. These units are
primarily in communities of apartments and town houses located in the Canton,
Ohio area. During 1993, CIVISTA constructed seven duplexes specifically for
low income housing.
CIVISTA views the Canton, Ohio area as a relatively stable market.
CIVISTA has experienced high occupancy in its rental properties over the past
twenty years. CIVISTA is not aware of any factors which would be expected to
have a significant impact on rental rates or occupancy.
Mortgage loans are outstanding on three apartment complexes. The cash
flows from these properties are more than adequate to service the debt.
Footnote 13 of the Notes to Consolidated Financial Statements provides
additional information on these mortgage loans.
REAL ESTATE DEVELOPMENT ASSETS
CIVISTA has one real estate development project located in California.
The Enclave Mountain Estates consists of 27.6 acres which have been developed
into 54 residential lots. This development is contiguous to the La Quinta
Hotel Golf and Tennis Resort in La Quinta, California. In May 1991, CIVISTA
received approval from the State of California to close sales on the 54
residential lots. As of September 30, 1994, sales have been closed on
seventeen lots; one was closed in fiscal 1994, one was closed in fiscal 1993
and four were closed in fiscal 1992. CIVISTA believes that the primary reasons
for the slow pace of the sellout of the development are discussed in the
following paragraph. CIVISTA also owns a 12 acre tract which is located only a
short distance from the Enclave Mountain Estates. Plans for this acreage have
not yet been finalized.
28
<PAGE> 29
Sale of the remaining 37 Enclave Mountain Estates lots are very dependent
upon the condition of the southern California real estate market. CIVISTA does
not expect significant sales activity until California recovers from the
current recession and the southern California real estate market improves. At
the end of December 1993, the KSL Recreation Group, Ltd. purchased the La
Quinta Hotel Golf and Tennis Resort from the Resolution Trust Corporation.
This sale eliminated the uncertainty of the past several years concerning who
would own the La Quinta Hotel Golf and Tennis Resort and how it would be
maintained and managed. Unfortunately, this has not resulted in sales activity
in the Enclave Mountain Estates. CIVISTA's investment in the Enclave Mountain
Estates is carried at the net realizable value of the remaining lots under
current economic conditions in southern California. CIVISTA does not have any
outstanding debt on this project.
During fiscal 1994, CIVISTA sold the final six homes in the 37-unit
single-family home development in Indio, California, known as Park Madison.
In 1994, CIVISTA recorded sales of $962,781 and cost of sales of $951,998
from the sales of the six Park Madison homes and one Enclave Mountain Estates
lot. Sales in 1993 were higher as a result of the closing of one Enclave
Mountain Estates lot, six Park Madison homes and a 28 acre undeveloped parcel
in Stark County, Ohio. In 1992, CIVISTA closed four Enclave Mountain Estates
lots and thirteen Park Madison homes.
ASSET REVIEW
Loans, real estate and other assets are monitored monthly to identify and
address problem assets. Reserves are provided for potential losses. At
year-end, the potential problem (classified) assets being closely monitored
included approximately $5.8 million of loans and real estate owned and $8.2
million of real estate development assets. See the table contained in
"Business-Risk Elements" under Item 1. Reserves of $3.5 million were provided
on these assets. At September 30, 1993, CIVISTA was closely monitoring
approximately $10.3 million of loans and real estate owned and $1.1 million of
real estate development assets. The more significant changes in classified
loans and real estate owned in 1994 are as follows:
CIVISTA was paid in full on a $1.3 million loan on an industrial warehouse
complex in Canton, Ohio when the property was sold as a result of foreclosure
proceedings.
During 1994, CIVISTA sold a $661,578 loan on property in Santa Rosa Cove,
La Quinta, California to a second lien holder.
CIVISTA reduced classified assets by approximately $668,000 when two
apartment complexes were refinanced with third party lenders.
Through sales, CIVISTA disposed of approximately $580,000 of real estate
owned.
The balance in the decline in classified loans and real estate owned is
the result of loan payoffs and improving conditions which resulted in fewer
loans being classified as problem assets.
Classified real estate development assets increased significantly in 1994.
In March 1994, CIVISTA classified the Enclave Mountain Estates lots and a 12
acre tract which is located only a short distance from the Enclave Mountain
Estates. This increased classified assets by $8,220,121.
At September 30,1993, CIVISTA had a non-earning loan of $476,633 to a
CIVISTA-managed joint venture which constructed condominiums, single-family
homes and sold lots in La Quinta, California. During 1994, CIVISTA charged off
the $476,633 balance.
The sale of six Park Madison homes in 1994 served to reduce classified
assets by $583,394. In February 1992, CIVISTA had classified the Park Madison
residential home development and reserved $150,000 as a result of the projected
sellout schedule. The $150,000 reserve was reversed.
29
<PAGE> 30
Management believes that the reserves are adequate and appropriate based
on the conditions that existed at September 30, 1994.
NOTES PAYABLE TO FEDERAL HOME LOAN BANK
At September 30, 1994, CIVISTA had $9.5 million of short-term advances
from the Federal Home Loan Bank which had been used for short-term cash
management purposes.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income during 1994 was affected by a number of factors. Interest
rates increased, which can be illustrated in the yields CIVISTA received on new
mortgage loan originations. In the month of September 1993, newly originated
mortgage loans yielded an average 7.03%. This compared to an average yield of
8.01% in September 1994. This increase in yield on newly originated loans is
principally a function of the increase in interest rates. Even though interest
rates on loans originated in 1994 increased, the average yield on loans
decreased. This was a result of the full impact in 1994 of lower rate loans
which had been granted in 1993 and 1992 and the amortization, payoff and
refinancing of higher rate loans. The average yield on loans decreased from
8.73% in 1993 to 8.09% in 1994 while the average balance outstanding decreased
$2.5 million. This resulted in a $3.4 million decrease in interest on loans.
The average yield on mortgage-backed securities decreased from 7.56% in 1993 to
5.99% in 1994 while the average balance outstanding increased $12.2 million.
This resulted in a $.5 million decrease in interest on mortgage-back
securities. At the same time, interest on investment securities increased as a
result of significantly higher average balances offsetting lower average
yields. The average balance of investment securities increased from $104.3
million in 1993 to $146.8 million in 1994. However, the yield on investment
securities declined from 5.11% in 1993 to 4.97% in 1994. Other interest and
dividend income decreased in 1994 as a result of lower average balances of
short-term cash investments.
During 1993, interest rates continued the decline which began in 1991.
This resulted in lower interest income. As a result of the sluggish economy,
interest rates declined on mortgage loans and investment securities. This drop
in rates can be illustrated in the yields CIVISTA received on new mortgage loan
originations. In the month of September 1992, newly originated mortgage loans
yielded an average 7.84%. This compared to an average yield of 7.03% in
September 1993. This drop in yield on newly originated loans is principally a
function of the decline in interest rates. However, it is also affected by the
trend to shorter-term loans which have slightly lower interest rates. The
average yield on loans decreased from 9.52% in 1992 to 8.74% in 1993 while the
average balance outstanding decreased $1.7 million. This resulted in a $4.1
million decrease in interest on loans. The average yield on mortgage-backed
securities decreased from 8.76% in 1992 to 7.09% in 1993 while the average
balance outstanding decreased $9.8 million. This resulted in a $1.8 million
decrease in interest on mortgage- backed securities. At the same time,
interest on investment securities increased as a result of significantly higher
average balances offsetting lower average yields. The average balance of
investment securities increased from $59.2 million in 1992 to $104.3 million in
1993. However, the yield on investment securities declined from 5.93% in 1992
to 5.11% in 1993. Other interest and dividend income decreased in 1993 as a
result of lower yields on short-term cash investments which declined from 4.45%
in 1992 to 2.84% in 1993 and lower average balances of short-term cash
investments.
30
<PAGE> 31
INTEREST EXPENSE
In spite of an increase in average total customer account balances from
$673.0 million in 1993 to $688.0 million in 1994, interest on customer deposits
fell from $24.3 million in 1993 to $23.1 million. The average rate paid on
customer accounts was 3.36% in 1994 compared with 3.62% in 1993. At September
30, 1994, and September 30, 1993, CIVISTA's cost of customer deposits was 3.51%
and 3.70%, respectively.
During 1993, CIVISTA experienced a 23% drop in interest expense. In spite
of an increase in average total customer account balances from $663.5 million
in 1992 to $673.0 million in 1993, interest on customer deposits fell from
$31.8 million in 1992 to $24.3 million in 1993. The average rate paid on
customer accounts was 3.62% in 1993 compared with 4.79% in 1992. At September
30, 1993, and September 30, 1992, CIVISTA's cost of customer deposits was 3.70%
and 4.07%, respectively.
Interest on notes payable to Federal Home Loan Bank and other borrowings
increased in 1994 as a result of an increased average balance of Federal Home
Loan Bank advances for short-term cash management purposes.
The decrease in interest on notes payable to Federal Home Loan Bank and
other borrowings in 1993 is a result of the repayment of Federal Home Loan Bank
advances in 1992.
INTEREST RATE SENSITIVITY
The largest influence on CIVISTA's net interest income is the spread
between the yield on interest-earning assets and the rates paid on
interest-bearing deposits. This spread can vary considerably over time because
of the relative levels of these assets and liabilities and because asset and
liability repricings do not always coincide. CIVISTA, as well as the majority
of other savings and loan associations, has shorter term liabilities funding
longer term assets, which results in liabilities repricing faster than assets
as interest rates change. In this scenario, net interest income is positively
affected by falling interest rates and negatively affected by rising interest
rates. During 1992 and 1993, CIVISTA benefited from the faster repricing of
liabilities as interest rates fell. During 1994 as interest rates began to
rise, net interest income decreased approximately $1.4 million. Rate changes
can have a substantial impact on net interest income because the nature of
CIVISTA's principal business is to borrow short-term funds and lend the funds
in longer term loans.
By following the policy of basing the price paid for funds on the yield
available on quality profitable investments and as a result of declining
interest rates in 1992 and 1993, and rising interest rates in 1994, CIVISTA's
net interest income increased from $28.2 million in 1992 to $31.3 million in
1993 and decreased to $29.9 million in 1994. During the same period, CIVISTA's
net yield on earning assets (net interest earnings divided by average
interest-earning assets) rose from 3.94% in 1992 to 4.16% in 1993 and fell to
3.86% in 1994. The net yield on earning assets of 4.16% in 1993 represents the
highest net yield and resulted in the highest earnings in CIVISTA's history.
Since CIVISTA's liabilities reprice faster than its assets, CIVISTA recognizes
that future increases in interest rates could substantially reduce net interest
income and net income.
This is especially true since a larger portion of customer deposits are
held in transaction and savings accounts. If rates move up, customers are
positioned to move into longer term certificates of deposit which generally
carry higher rates.
PROVISION FOR LOAN LOSSES
During 1994, CIVISTA provided $.2 million as a provision for loan losses.
This provision reflects the continual monitoring of classified assets and the
reduction in classified loans as noted under ASSET REVIEW.
31
<PAGE> 32
DATA PROCESSING SALES AND SERVICE
The continuing consolidation of the savings and loan industry was the
principal cause of the $1,138,000 decrease in data processing sales and service
in 1994. During 1994, CASNET had a $1.5 million decline in traditional savings
and loan processing revenue as a result of losing two customers in 1994 and
experiencing the full impact of five customers which were lost during 1993.
Recognizing that the savings and loan industry has been consolidating,
CASNET has been working to expand its other services. Over the last few years,
CASNET has marketed interactive voice response technology to hospitals and
other organizations. As a result, sales and installation of interactive voice
response systems grew by $376,000 in 1994. CASNET is also marketing its
microfiche services in Ohio and western Pennsylvania. CASNET entered the
credit union on-line servicing business in 1992. This processing added
$518,000 of revenue in 1993 and $179,000 of revenue during the last four months
of 1992.
INVESTMENT SECURITY GAINS
In January 1994, CIVISTA sold 15,000 shares of Student Loan Marketing
Association stock which resulted in a gain of $713,450.
DEPOSIT INSURANCE PREMIUMS
During 1993, CIVISTA was allowed by law to reduce its deposit insurance
premium by offsetting against its premiums $362,434 of payments which had been
made prior to 1969 into the Federal Savings and Loan Insurance Corporation. As
a result, 1993's deposit insurance premiums were less than 1994 and 1992.
PROVISION FOR REAL ESTATE LOSSES
During 1994, CIVISTA provided $564,487 for real estate losses in order to
reserve $378,000 on the Enclave Mountain Estates and a nearby 12 acre parcel
and to fully reserve and charge off the $476,633 non-earning loan. The
$150,000 reserve on the Park Madison residential development was reversed.
During 1993, CIVISTA provided $50,000 for real estate losses on the
remaining loan to the joint venture in La Quinta, California and charged off
$135,000 against the reserve. During 1992, CIVISTA provided $705,712 for real
estate losses. This was comprised of $150,000 on the Park Madison residential
development, $50,000 on the remaining loan to the joint venture in La Quinta,
California, and $505,712 representing a provision for losses on real estate
acquired in settlement of loans. In 1992, CIVISTA charged off the $800,000
reserve on undeveloped Florida land and provided an additional $375,000
reserve.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan". This Statement requires that impaired loans that
are within the scope of this Statement be measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate
or at the loan's observable market price or at the fair value of the collateral
if the loan is collateral dependent. CIVISTA is required to adopt this
Statement on October 1, 1995. The adoption of this Statement is not expected
to have a material impact on CIVISTA's financial position or results of
operations.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
This Statement requires that debt and equity securities be classified in three
categories and accounted for as follows: 1) held- to-maturity securities are
reported at amortized cost; 2) trading securities are reported at fair value
with unrealized gains and losses included in earnings; and 3)
available-for-sale securities are reported at fair value with unrealized gains
and losses excluded from earnings and reported in a separate component of
shareholders' equity. CIVISTA adopted this Statement on October 1, 1994. If
CIVISTA had adopted this Statement on September 30, 1994, the carrying value of
the FNMA and SLMA common stock would have been increased by $560,137 and
shareholders' equity would have reflected an additional $364,089 representing
the impact of the unrealized gain net of income tax.
32
<PAGE> 33
CAPITAL ADEQUACY
CAPITAL REQUIREMENTS
OTS regulations require savings institutions to meet three capital
requirements - tangible capital, leverage capital and risk-based capital.
Citizens Savings Bank exceeds all current capital requirements.
Savings associations must generally maintain minimum tangible capital of
1.5% of total assets. Tangible capital consists of common shareholders'
equity, noncumulative perpetual preferred stock and related surplus and
minority interest in consolidated subsidiaries less goodwill and certain other
intangible assets. The leverage ratio requirement mandates capital of 3% of
total assets subject to certain adjustments. For the risk-based capital
requirement, the OTS has assigned risk weighting factors to all assets and
certain commitments. Savings institutions must maintain capital at 8% of these
risk weighted assets. The OTS issued a final regulation adding an interest
rate risk component to the risk-based regulatory capital requirement effective
March 31, 1995.
On December 19, 1992, the prompt corrective action regulations of the
Federal Deposit Insurance Corporation Improvement Act became effective. These
regulations define specific capital categories based on an institution's
capital ratios. The capital categories are "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized" and
"critically undercapitalized". To be considered "well capitalized", an
institution must generally have a leverage ratio of at least 5 percent, a Tier
1 risk-based capital ratio of at least 6 percent, and a total risk-based
capital ratio of at least 10 percent.
CAPITAL POSITION
CIVISTA has a very strong capital position. At year-end, shareholders'
equity was $91.8 million which represented 11.5% of assets and 13.0% of
liabilities. Citizens Savings Bank had shareholder's equity totalling 8.2% of
its assets and 8.9% of its liabilities at September 30, 1994.
Citizens Savings Bank's compliance with the fully phased-in capital
requirements in effect at September 30, 1994 is as follows (000's omitted):
<TABLE>
<CAPTION>
Tier 1 Tier 1 Total
Tangible Leverage Leverage Risk-Based Risk-Based
Capital Capital Capital Capital Capital
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Capital determined under generally
accepted accounting principles $ 62,284 62,284 62,284 62,284 62,284
Adjustment:
General valuation reserves -- -- -- -- 2,721
--------- --------- --------- --------- ---------
Regulatory capital 62,284 62,284 62,284 62,284 65,005
Minimum capital requirement 11,427 22,855 38,091 20,364 27,152
--------- --------- --------- --------- ---------
Excess regulatory capital $ 50,857 39,429 24,193 41,920 37,853
========= ========= ========= ========= =========
Adjusted or risk-weighted
assets applicable to
calculation $ 761,825 761,825 761,825 339,396 339,396
========= ========= ========= ========= =========
Capital ratio 8.18% 8.18% 8.18% 18.35% 19.15%
========= ========= ========= ========= =========
Required minimum
regulatory capital 1.50% 3.00% 8.00%
========= ========= =========
Ratio required to meet the
well capitalized definition 5.00% 6.00% 10.00%
========= ========= =========
</TABLE>
33
<PAGE> 34
INFLATION
CIVISTA's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.
Virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of inflation.
34
<PAGE> 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required for Item 8 follows:
THE CIVISTA CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Cash including short-term cash investments
of $9,848,713 and $6,537,815, respectively $ 25,394,899 19,189,901
Investment securities with market values of
$129,961,000 and $154,378,000, respectively (note 3) 133,498,917 151,134,497
Mortgage-backed securities, net with market values
of $88,806,000 and $83,813,000, respectively (note 4) 94,068,918 82,685,272
Mortgage loans, net (notes 5 and 12) 481,392,368 478,136,520
Mortgage loans, available for sale, with
market value of $240,000 (note 5) 242,400 --
Other loans, net (note 6) 23,602,411 23,821,520
--------------- -----------
TOTAL MORTGAGE-BACKED SECURITIES
AND LOANS RECEIVABLE, NET 599,306,097 584,643,312
--------------- -----------
Accrued interest receivable, net 4,565,348 5,063,846
Real estate acquired in settlement of loans, net (note 7) 937,255 1,449,456
Real estate investment property, net (notes 8 and 13) 12,638,047 13,543,632
Federal Home Loan Bank stock 5,284,200 5,618,200
Office properties and equipment, net (note 9) 5,903,478 6,284,520
Real estate development assets, net (note 10) 7,842,121 9,385,979
Other assets 3,045,179 2,701,953
--------------- -----------
TOTAL ASSETS $ 798,415,541 799,015,296
=============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Customer deposits (note 11) $ 678,630,798 684,068,900
Notes payable to Federal Home Loan Bank (note 12) 9,802,167 14,327,037
Mortgage loans payable (note 13) 9,020,121 9,133,871
Advance payments by borrowers for taxes and insurance 3,127,988 2,991,037
Other liabilities 6,053,619 5,533,314
--------------- -----------
TOTAL LIABILITIES 706,634,693 716,054,159
--------------- -----------
Shareholders' equity (notes 15 and 17):
Serial preferred stock, without par value;
authorized and unissued 5,000,000 shares -- --
Common stock, without par value, 5,000,000 shares
authorized; 3,506,552 and 3,493,352 shares issued,
respectively 11,869,905 11,751,380
Retained earnings, substantially restricted 80,053,797 71,276,053
Valuation allowance on Federated ARMS Fund ( 76,558) --
Treasury stock, 8,248 shares, at cost ( 66,296) ( 66,296)
--------------- -----------
TOTAL SHAREHOLDERS' EQUITY 91,780,848 82,961,137
Commitments (notes 5, 6, 9 and 16)
--------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 798,415,541 799,015,296
================== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 36
THE CIVISTA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Interest on mortgage and other loans $ 40,856,491 44,304,863 48,420,552
Interest on mortgage-backed securities 5,404,774 5,892,966 7,695,353
Interest on investment securities 7,293,823 5,326,741 3,510,180
Other interest and dividend income 654,196 1,094,826 1,865,459
------------- ------------- -------------
TOTAL INTEREST INCOME 54,209,284 56,619,396 61,491,544
Interest on customer deposits (note 11) 23,092,632 24,342,579 31,803,368
Interest on notes payable to Federal Home
Loan Bank and other borrowings 1,211,924 1,019,614 1,490,864
------------- ------------- -------------
TOTAL INTEREST EXPENSE 24,304,556 25,362,193 33,294,232
------------- ------------- -------------
NET INTEREST INCOME 29,904,728 31,257,203 28,197,312
------------- ------------- -------------
Provision for loan losses (notes 5 and 6) 162,634 816,625 1,308,179
------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 29,742,094 30,440,578 26,889,133
------------- ------------- -------------
Other income:
Real estate operations (note 8) 4,504,358 4,264,085 3,906,334
Real estate development sales (note 10) 962,781 1,436,939 2,687,045
Data processing sales and service 4,207,897 5,345,646 6,264,722
Commissions on annuity and mutual fund sales 1,388,848 1,223,956 1,307,679
Investment security gains, net (note 3) 729,075 625 3,750
Gains on sales of mortgage loans and mortgage-
backed securities, net (notes 4 and 5) 38,110 2,387,361 707,509
Customer service fees 1,120,216 1,132,363 1,160,778
Other income 829,191 798,000 602,678
------------- ------------- -------------
TOTAL OTHER INCOME 13,780,476 16,588,975 16,640,495
Other expenses:
Compensation and related expenses (note 16) 12,097,255 12,327,987 11,445,741
Office occupancy (note 9) 3,017,144 3,127,711 3,432,586
Deposit insurance premiums 1,572,918 1,150,697 1,416,152
Ohio financial institution tax 870,424 976,948 915,810
Real estate operations (note 8) 2,926,069 3,254,390 3,041,187
Cost of real estate development sales (note 10) 951,998 1,325,200 2,666,046
Provision for real estate losses (notes 7 and 10) 564,487 50,000 705,712
Other expense 4,423,873 4,965,258 4,872,756
------------- ------------- -------------
TOTAL OTHER EXPENSES 26,424,168 27,178,191 28,495,990
------------- ------------- -------------
EARNINGS BEFORE FEDERAL INCOME TAXES 17,098,402 19,851,362 15,033,638
------------- ------------- -------------
Federal income taxes (benefit) (note 14):
Current 6,087,000 7,006,000 6,470,000
Deferred ( 37,000) ( 227,000) ( 993,000)
------------- ------------- -------------
6,050,000 6,779,000 5,477,000
------------- ------------- -------------
NET EARNINGS $ 11,048,402 13,072,362 9,556,638
============= ============= =============
NET EARNINGS PER SHARE $ 3.02 3.64 2.71
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 37
THE CIVISTA CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
RETAINED
EARNINGS,
SUBSTANTIALLY TOTAL
COMMON RESTRICTED SHAREHOLDERS'
STOCK (NOTE 15) OTHER EQUITY
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1991 $ 11,426,105 51,815,943 ( 63,847) 63,178,201
Net earnings -- 9,556,638 -- 9,556,638
Cash dividends - $.41 1/4 per share -- ( 1,429,228) -- ( 1,429,228)
Stock options exercised 164,650 -- -- 164,650
Treasury stock purchased -- -- ( 2,449) ( 2,449)
------------- ------------ ------------ --------------
BALANCE, SEPTEMBER 30, 1992 11,590,755 59,943,353 ( 66,296) 71,467,812
Net earnings -- 13,072,362 -- 13,072,362
Cash dividends - $.50 per share -- ( 1,739,662) -- ( 1,739,662)
Stock options exercised 160,625 -- -- 160,625
------------- ------------ ------------ --------------
BALANCE, SEPTEMBER 30, 1993 11,751,380 71,276,053 ( 66,296) 82,961,137
Net earnings -- 11,048,402 -- 11,048,402
Cash dividends - $.65 per share -- ( 2,270,658) -- ( 2,270,658)
Stock options exercised 118,525 -- -- 118,525
Valuation allowance on
Federated ARMS Fund -- -- ( 76,558) ( 76,558)
------------- ------------ ------------- --------------
BALANCE, SEPTEMBER 30, 1994 $ 11,869,905 80,053,797 ( 142,854) 91,780,848
============= ============ ============= ==============
See accompanying notes to consolidated financial statements.
</TABLE>
37
<PAGE> 38
THE CIVISTA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
OPERATING ACTIVITIES:
<S> <C>
Net earnings $ 11,048,402 13,072,362 9,556,638
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Decrease (increase) in accrued interest receivable 498,498 ( 179,436) ( 202,008)
Provision for loan losses 162,634 816,625 1,308,179
Provision for real estate losses 564,487 50,000 705,712
Depreciation and amortization 1,689,258 1,719,587 1,625,897
Federal Home Loan Bank stock dividend ( 347,900) ( 252,000) ( 262,300)
Investment security gains, net ( 729,075) ( 625) ( 3,750)
Increase (decrease) in deferred loan
origination fees, net ( 185,203) 13,283 278,040
Amortization of deferred loan
origination fees ( 892,110) ( 1,342,508) ( 813,213)
Gains on sales of real estate
acquired in settlement of loans, net ( 84,741) ( 157,759) ( 20,951)
Increase (decrease) in federal
income taxes 670,485 ( 766,256) ( 1,278,734)
Investment securities available for sale:
Purchases ( 6,000,000) ( 500,000) --
Proceeds from sales 6,733,877 500,625 338,750
Mortgage loans available for sale:
Proceeds from sales 8,058,478 510,857 7,456,673
Losses (gains) on sales, net ( 38,110) ( 6,367) 24,713
Originations ( 8,262,768) ( 504,490) ( 1,431,200)
Mortgage-backed securities available for sale:
Principal collected -- 13,794,033 643,724
Proceeds from sales -- 54,678,322 26,483,841
Gains on sales, net -- ( 2,380,994) ( 732,222)
Other loans available for sale:
Proceeds from sales 1,591,797 1,543,999 3,267,018
Originations ( 1,945,000) -- --
Other ( 168,672) ( 575,126) ( 628,048)
-------------- ------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 12,364,337 80,034,132 46,316,759
-------------- ------------- -------------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 54,705,679 42,542,094 24,050,765
Purchases of investment securities ( 37,378,127) ( 113,515,322) ( 75,645,757)
Principal collected on mortgage loans 91,518,723 92,807,906 86,959,752
Principal collected on mortgage-backed securities 15,930,934 9,194,710 12,077,851
Principal collected on other loans 15,196,707 15,454,286 16,412,022
Mortgage loan originations ( 94,483,724) ( 97,876,023) ( 79,897,309)
Other loan originations ( 14,609,239) ( 14,899,019) ( 15,344,011)
Purchase of mortgage loans ( 17,667) ( 1,911,696) ( 300,978)
Purchase of mortgage-backed securities ( 27,683,309) ( 65,392,868) ( 34,886,640)
</TABLE>
(Continued)
38
<PAGE> 39
THE CIVISTA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Purchase of office properties and
equipment, net ( 452,792) ( 970,082) ( 306,020)
Proceeds from sale of mortgage loan 596,381 -- --
Proceeds from sales of real estate acquired in
settlement of loans 706,352 1,384,851 1,016,076
Proceeds from sales of real estate
investment property 745,539 429,677 276,005
Investment in real estate investment property ( 482,718) ( 1,195,378) ( 334,566)
Redemption of Federal Home Loan Bank stock 681,900 358,900 215,000
Purchase of Federal Home Loan Bank stock -- ( 2,400) ( 356,100)
Sales of real estate development assets 962,781 1,436,939 2,687,045
Reduction (investment) in real estate
development assets ( 4,855) 5,988 ( 311,724)
------------- -------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 5,932,565 ( 132,147,437) ( 63,688,589)
------------- -------------- --------------
FINANCING ACTIVITIES:
Net increase in customer transaction and
savings accounts 1,468,849 38,583,721 83,582,446
Proceeds from sales of certificates of deposit 21,678,159 28,371,000 21,968,000
Payments for maturing certificates of deposit ( 28,585,110) ( 44,773,000) ( 94,874,000)
Proceeds from mortgage loan payable -- -- 1,500,000
Principal payments on mortgage loans and
notes payable ( 113,750) ( 102,695) ( 673,456)
Cash dividends ( 2,270,658) ( 1,739,662) ( 1,429,228)
Stock options exercised 118,525 160,625 164,650
Purchase of treasury stock -- -- ( 2,449)
Borrowing from the Federal Home Loan Bank 99,700,000 14,000,000 10,500,000
Repayments to the Federal Home Loan Bank (104,224,870) ( 24,870) ( 20,521,143)
Net increase in advance payments
by borrowers for taxes and insurance 136,951 145,723 79,621
------------- -------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ( 12,091,904) 34,620,842 294,441
------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,204,998 ( 17,492,463) ( 17,077,389)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,189,901 36,682,364 53,759,753
------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,394,899 19,189,901 36,682,364
============= ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on customer deposits and borrowings $ 24,308,755 25,314,594 33,390,157
============= ============== ==============
Federal income taxes $ 3,675,605 5,865,256 6,755,734
============= ============== ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Real estate acquired in settlement
of loans $ 380,970 1,395,983 371,637
============= ============== ==============
See accompanying notes to consolidated financial statements.
</TABLE>
39
<PAGE> 40
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting and
reporting policies of The CIVISTA Corporation (CIVISTA) and its
subsidiaries which are followed in preparing and presenting its
consolidated financial statements. CIVISTA's activities are considered
to be a single industry segment for financial reporting purposes.
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
CIVISTA and its wholly owned subsidiaries, Citizens Savings Bank
of Canton (Citizens Savings Bank), Citizens Savings Corporation
(CSC), The CASNET Group, Inc. (CASNET), Crest Investments, Inc.,
and Citizens Investment Corporation. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
B. REVENUE RECOGNITION
Interest income is recognized on the accrual basis as earned
based on rates applied to principal amounts outstanding.
C. CASH EQUIVALENTS
Cash equivalents include short-term investments in amounts due
from banks, interest bearing deposits and federal funds sold with
original maturity of three months or less. Generally, federal
funds sold are purchased and sold for one-day periods.
D. PROVISION FOR LOAN LOSSES
Provisions for losses on loans are charged to earnings when it is
determined that the investment in such assets is greater than the
estimated net realizable value. Additionally, accrual of
interest on potential problem loans is excluded from income (by
an offsetting increase in a specific allowance for loss) when, in
the opinion of management, such suspension is warranted. In
addition to providing reserves on specific loans, CIVISTA
establishes general reserves for losses based upon the overall
portfolio composition and general market conditions. While
management uses the best available information to make these
evaluations, future adjustments to the reserves may be necessary
if economic circumstances differ substantially from the
information and assumptions used.
E. LOAN ORIGINATION FEES
Loan origination fees and certain direct origination costs are
deferred and amortized, generally, over the contractual life of
the related loan using a level yield method.
40
<PAGE> 41
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
F. MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES
Mortgage loans and mortgage-backed securities held for investment
are carried at cost and the related premium or discount is
amortized using the level yield method over the estimated
remaining lives of the underlying investments. These investments
are carried at cost because of management's intention and
CIVISTA's ability to hold them to maturity.
Mortgage loans and mortgage-backed securities available for sale
are carried at the lower of cost or estimated market value in the
aggregate. CIVISTA classifies as available for sale, certain
mortgage loans and mortgage-backed securities which it expects to
hold for indefinite periods of time. Such assets may be sold in
response to changes in interest rates. Gains or losses on the
sales of mortgage loans and mortgage-backed securities are
recognized on realization.
G. OFFICE PROPERTIES AND EQUIPMENT AND REAL ESTATE INVESTMENT PROPERTY
Office properties and equipment are depreciated using a
straight-line method over the estimated useful lives of the
related assets. Estimated lives for buildings are 50 years and
furniture and equipment 3-10 years. Leasehold improvements are
amortized over the shorter of the estimated useful life of the
asset or the term of the lease.
Real estate investment property is depreciated generally using a
straight-line method over the estimated useful lives. Estimated
lives for buildings are 25-55 years and furniture and fixtures
3-20 years.
Maintenance and repairs are charged to appropriate expense
accounts in the year incurred.
H. INVESTMENT SECURITIES
Investment securities are carried at cost, adjusted for
amortization of premium. Investment securities are carried at
cost because of management's intention and CIVISTA's ability to
hold them to maturity. Marketable equity securities are carried
at the lower of cost or market. Gains or losses on the sales of
securities are recognized on realization.
I. FEDERAL INCOME TAXES
CIVISTA adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" on October 1, 1993. This
statement prescribes the asset and liability method of accounting
for income taxes. Deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted
statutory tax rates to differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. The effect of a change in tax rates is
recognized in income in the period of the enactment date. The
impact of the adoption of this method for income taxes was
insignificant.
Prior to fiscal 1994, deferred income taxes were provided for
income and expense items which were reported for tax purposes in
different years than for financial statement purposes.
41
<PAGE> 42
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
J. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired through foreclosure is initially recorded at
the lower of cost or fair value. Subsequent to acquisition, real
estate acquired through foreclosure is carried at the lower of
cost or fair value minus estimated costs to sell. Declines in
value are reserved through the allowance disclosed in note 7 and
subsequently charged off if appropriate. Costs relating to
development and improvement are capitalized up to fair value
minus estimated costs to sell.
K. REAL ESTATE DEVELOPMENT ASSETS
Real estate development assets are held for sale and are carried
at the lower of cost or net realizable value. Costs relating to
development and improvement are capitalized up to net realizable
value.
L. PENSION PLAN
CIVISTA's policy is to fund pension costs in accordance with the
Employee Retirement Income Security Act of 1974.
M. POSTRETIREMENT HEALTH CARE
In 1992, CIVISTA adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" with immediate recognition of the
transition obligation. This change did not have a material
impact on net earnings and net earnings per share.
N. NET EARNINGS PER SHARE
Net earnings per share are based upon the weighted average number
of common shares and common share equivalents outstanding during
each year, adjusted to reflect the two-for-one stock split of
November 22, 1993. The weighted average number of common shares
and common share equivalents outstanding during 1994, 1993 and
1992 was 3,663,862, 3,594,718 and 3,529,640, respectively.
O. RECLASSIFICATIONS
Certain previously reported financial statement amounts have been
reclassified to conform to the 1994 presentation.
2. PENDING MERGER
On August 10, 1994, CIVISTA entered into an Agreement of Affiliation and
Plan of Merger with First Bancorporation of Ohio (FBOH). Pursuant of
this agreement, CIVISTA will be merged into FBOH and the merger will be
accounted for as a pooling of interests. It is contemplated that
Citizens Savings Bank will merge with The First National Bank in
Massillon, a Stark County subsidiary of FBOH. Under the terms of the
agreement, FBOH will exchange 1.723 shares of its common stock for each
outstanding CIVISTA share. CIVISTA has granted FBOH an option to
acquire 350,655 shares of CIVISTA preferred stock at $33.50 per share,
which option becomes exercisable upon the occurrence of specified events
not consistent with the merger being consummated. Subject to regulatory
approval, the merger is expected to be completed during the first
calendar quarter of 1995.
42
<PAGE> 43
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT SECURITIES
A summary of investment securities follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
GROSS GROSS
CARRYING MARKET UNREALIZED UNREALIZED
VALUE VALUE GAINS LOSSES
<S> <C> <C> <C> <C>
United States Government
and agency obligations $ 128,485,330 124,399,000 -- 4,086,330
Ford Motor Credit note 5,000,000 4,988,000 -- 12,000
FNMA and SLMA common
stock, available for sale 13,587 574,000 560,413 --
-------------- ------------- ------------ -----------
TOTAL $ 133,498,917 129,961,000 560,413 4,098,330
============== ============= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
GROSS GROSS
CARRYING MARKET UNREALIZED UNREALIZED
VALUE VALUE GAINS LOSSES
<S> <C> <C> <C> <C>
United States Government
and agency obligations $ 146,115,705 147,963,000 1,847,295 --
Ford Motor Credit Note 5,000,000 5,000,000 -- --
FNMA and SLMA common
stock, available for sale 18,792 1,415,000 1,396,208 --
-------------- ------------- ------------ -----------
TOTAL $ 151,134,497 154,378,000 3,243,503 --
============== ============= ============ ===========
</TABLE>
A summary of United States Government and agency obligations at
September 30, 1994 by maturity follows:
<TABLE>
<CAPTION>
CARRYING MARKET
VALUE VALUE
<S> <C> <C>
Due in one year or less $ 38,973,610 38,832,000
Due after one year through five years 76,510,176 73,383,000
Due after five years through seven years 13,001,544 12,184,000
-------------- ------------
TOTAL $ 128,485,330 124,399,000
============= ===========
</TABLE>
The $5,000,000 Ford Motor Credit note matures September 16, 1998.
43
<PAGE> 44
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
A summary of sales proceeds and realized gains and losses follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <C> <C>
Sales proceeds $ 6,733,877 500,625 338,750
Realized gains 729,075 625 3,750
Realized losses -- -- --
============ ============== ==============
</TABLE>
4. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
GROSS GROSS
CARRYING MARKET UNREALIZED UNREALIZED
VALUE VALUE GAINS LOSSES
<S> <C> <C> <C> <C>
Held for investment:
FHLMC participation
certificates $ 39,094,987 37,350,000 44,662 1,789,649
FNMA participation
certificates 51,818,189 48,300,000 -- 3,518,189
Federated ARMS fund 3,155,742 3,156,000 258 --
-------------- ------------- ------------- -----------
TOTAL $ 94,068,918 88,806,000 44,920 5,307,838
============== ============= ============= ===========
</TABLE>
44
<PAGE> 45
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
GROSS GROSS
CARRYING MARKET UNREALIZED UNREALIZED
VALUE VALUE GAINS LOSSES
<S> <C> <C> <C> <C>
Held for investment -
FHLMC participation
certificates $ 39,556,402 40,469,000 922,006 9,408
FNMA participation
certificates 40,038,491 40,250,000 212,492 983
Federated ARMS fund 3,090,379 3,094,000 3,621 --
-------------- ------------- ------------ -----------
TOTAL $ 82,685,272 83,813,000 1,138,119 10,391
============== ============= ============ ===========
</TABLE>
The contractual maturities of mortgage-backed securities are as follows.
Actual maturities are expected to be less than contractual maturities
due to anticipated prepayments.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
CARRYING MARKET
VALUE VALUE
<S> <C> <C>
Due in one year or less $ 344,522 344,000
Due after one year through five years 16,096,369 15,825,000
Due after five years through ten years 75,164,488 70,173,000
Due after ten years 2,463,539 2,464,000
--------------- -------------
TOTAL $ 94,068,918 88,806,000
=============== ==============
</TABLE>
A summary of sales proceeds and realized gains and losses follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <C> <C>
Sales proceeds $ -- 54,678,322 26,483,841
Realized gains -- 2,380,994 806,672
Realized losses -- -- 74,450
============== ============ =============
</TABLE>
45
<PAGE> 46
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. MORTGAGE LOANS, NET
A summary of mortgage loans follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
<S> <C> <C>
Conventional-fixed rate $ 341,881,153 321,809,497
Conventional-adjustable rate 100,180,840 113,370,013
Construction 27,647,006 25,944,699
FHA insured-fixed rate 18,200,224 21,581,697
FHA insured-adjustable rate 4,719,921 5,937,922
VA guaranteed 11,236,865 13,172,017
Loans available for sale (market
value $240,000) 242,400 --
-------------- --------------
504,108,409 501,815,845
Less: Reserve for loan losses 2,566,176 2,553,479
Undisbursed loans in process 17,015,740 18,015,260
Deferred loan fees and discounts 2,891,725 3,110,586
-------------- -------------
TOTAL $ 481,634,768 478,136,520
============== =============
WEIGHTED AVERAGE YIELD AT YEAR-END 7.78 % 8.04 %
===== =====
</TABLE>
A summary of sales proceeds and realized gains and losses follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <C> <C>
Sales proceeds $ 8,058,478 510,857 7,456,673
Realized gains 68,174 6,367 3,052
Realized losses 30,064 -- 27,765
============= ============= ===========
</TABLE>
Transactions in the reserve for loan losses are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <<C> <<C>
Balance at beginning of year $ 2,553,479 1,775,669 854,968
Provision for losses 132,000 784,400 1,088,484
Losses charged off, net ( 119,303) ( 6,590) ( 167,783)
-------------- ------------ -----------
BALANCE AT END OF YEAR $ 2,566,176 2,553,479 1,775,669
============== ============ ===========
</TABLE>
Interest which was reserved is recognized in income upon collection.
46
<PAGE> 47
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Outstanding commitments to fund fixed rate and adjustable rate mortgage
loans aggregated approximately $3,667,000 and $425,000, respectively, at
September 30, 1994.
CIVISTA's primary lending area is within Stark County, Ohio. At
September 30, 1994, approximately $393,747,000 of CIVISTA's gross loans
were to borrowers located in Stark County. In addition, at September
30, 1994, approximately $50,666,000 of CIVISTA's gross loans were
located in other Ohio counties.
At September 30, 1994, 1993, and 1992, CIVISTA serviced loans for others
aggregating approximately $26,737,000, $29,584,000 and $24,016,000,
respectively.
6. OTHER LOANS, NET
A summary of other loans follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
<S> <C> <C>
Loans on savings deposits $ 1,972,536 2,189,840
Consumer loans 19,088,384 19,188,218
Education loans, available for sale 2,623,878 2,362,511
Lease financing 84,129 250,902
-------------- ---------------
23,768,927 23,991,471
Less: Reserve for loan losses 159,410 138,663
Unearned discount 7,106 31,288
-------------- ---------------
TOTAL $ 23,602,411 23,821,520
============== ===============
</TABLE>
Due to the processing requirements, CIVISTA has adopted the policy of
selling education loans before payments commence. The market value of
education loans approximates book value.
Transactions in the reserve for other loan losses are summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $ 138,663 121,661 45,307
Provision for losses 30,634 32,225 219,695
Losses charged off, net ( 9,887) ( 15,223) (143,341)
----------- ---------- ----------
BALANCE AT END OF YEAR $ 159,410 138,663 121,661
=========== ========== ==========
</TABLE>
47
<PAGE> 48
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CIVISTA had unused consumer home equity and credit card lines of credit
of $20,812,000 and $10,210,000, respectively, at September 30, 1994.
CIVISTA extends home equity and credit card lines of credit in the
normal course of business to meet the financing needs of customers.
While CIVISTA expects a significant portion of these lines of credit to
remain undrawn, the exposure to credit loss in the event of
nonperformance by the borrower is represented by the amount drawn down.
The credit policies and underwriting guidelines used in issuing lines of
credit are the same as for other loans receivable.
7. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS, NET
Transactions in the reserve for losses on real estate acquired in
settlement of loans are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <C><C> <<C>
Balance at beginning of year $ 440,213 634,802 1,057,879
Provision for losses -- -- 505,712
Losses charged off, net ( 4,019) ( 194,589) ( 928,789)
------------- ----------- ------------
BALANCE AT END OF YEAR $ 436,194 440,213 634,802
============= =========== ============
</TABLE>
8. REAL ESTATE INVESTMENT PROPERTY, NET
Real estate investment property consists primarily of residential
communities of apartments and town houses located in the Canton, Ohio
area. A summary of real estate investment property follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1993
<S> <C> <C>
Land and land improvements $ 2,195,452 2,388,035
Multi-family residential buildings 18,890,229 19,315,169
Furniture and equipment 1,878,299 1,571,876
--------------- -------------
Total at cost 22,963,980 23,275,080
Less accumulated depreciation 10,325,933 9,731,448
--------------- -------------
TOTAL $ 12,638,047 13,543,632
=============== =============
</TABLE>
Depreciation expense was $878,833, $900,118, and $920,985 in 1994, 1993,
and 1992, respectively.
48
<PAGE> 49
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. OFFICE PROPERTIES AND EQUIPMENT, NET
A summary of office properties and equipment follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1993
<S> <C> <C>
Land $ 694,131 694,131
Buildings 4,516,009 4,148,391
Furniture and equipment 6,880,765 6,532,218
Leasehold improvements 1,973,425 2,312,216
------------- ------------
Total at cost 14,064,330 13,686,956
Less accumulated depreciation and
amortization 8,160,852 7,402,436
------------- -----------
TOTAL $ 5,903,478 6,284,520
============= ===========
</TABLE>
Depreciation and amortization expense was $810,425, $819,469, and
$704,912 in 1994, 1993, and 1992, respectively.
At September 30, 1994, CIVISTA was obligated to pay rental commitments
under noncancellable operating leases on certain offices and equipment
as follows:
<TABLE>
<CAPTION>
YEAR ENDING LEASE
SEPTEMBER 30, COMMITMENTS
<S> <C>
1995 $ 583,261
1996 475,447
1997 357,690
1998 240,920
1999 185,358
2000 - 2003 723,006
------------
TOTAL $ 2,565,682
===========
</TABLE>
It is anticipated that certain leases which terminate in 1995 will be
renewed.
Rentals charged to operations under all operating leases amounted to
approximately $1,162,000, $1,262,000, and $1,575,000 in 1994, 1993, and
1992, respectively.
49
<PAGE> 50
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. REAL ESTATE DEVELOPMENT ASSETS, NET
Real estate development assets are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1993
<S> <C> <C> <C>
Enclave Mountain Estates and additional
undeveloped parcel, La Quinta, California $ 8,220,121 8,595,094
Less reserve for losses ( 378,000) --
-------------- --------------
7,842,121 8,595,094
-------------- --------------
Park Madison, Indio, California -- 604,398
Less reserve for losses -- ( 150,000)
-------------- --------------
-- 454,398
-------------- --------------
Non-earning loan -- 476,633
Less reserve for losses -- ( 140,146)
-------------- --------------
-- 336,487
-------------- --------------
TOTAL $ 7,842,121 9,385,979
============== ==============
</TABLE>
CIVISTA acquired title to 40 acres in La Quinta, California in June
1990. CIVISTA has developed 27.6 acres into 54 residential lots known
as the Enclave Mountain Estates. In May, 1991, CIVISTA received
approval from the State of California to close sales on the 54
residential lots. CIVISTA has closed sales on seventeen lots as of
September 30, 1994, and is continuing to market the remaining lots.
CIVISTA has not yet finalized plans for the remaining 12.4 acres.
During 1994, CIVISTA completed the sell out of the last six Park Madison
homes and charged off the non-earning loan.
50
<PAGE> 51
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Transactions in the reserve for losses on real estate development assets
are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $ 290,146 375,146 175,146
Provision for losses 564,487 50,000 200,000
Losses charged off, net ( 476,633) ( 135,000) --
------------ ----------- ------------
BALANCE AT END OF YEAR $ 378,000 290,146 375,146
=========== =========== ============
</TABLE>
Condensed statements of operations for CIVISTA's real estate development
operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <C> <C>
Income:
Real estate development sales, net $ 962,781 1,436,939 2,687,045
Interest income 849 5,936 6,250
Other income 248,151 6,005 17,754
------------ ------------ ------------
1,211,781 1,448,880 2,711,049
------------ ------------ ------------
Expenses:
Cost of real estate development sales 951,998 1,325,200 2,666,046
Interest expense -- -- 13,998
Other operating expenses 1,017,022 1,067,170 1,417,670
------------ ----------- ------------
1,969,020 2,392,370 4,097,714
------------ ------------ ------------
Loss before federal income taxes 757,239 943,490 1,386,665
Federal income tax benefit 265,034 327,863 471,466
------------ ------------ ------------
NET LOSS $ 492,205 615,627 915,199
============ ============ ============
</TABLE>
51
<PAGE> 52
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. CUSTOMER DEPOSITS
Customer deposit balances are summarized as follows (000's omitted):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
<S> <C> <C> <C>
STATED RATE AMOUNT % STATED RATE AMOUNT %
Checking .00 - 3.00% $ 111,572 16.5% .00- 3.00% 108,651 15.9%
Money market 2.75 - 3.00 16,603 2.4 2.75- 3.00 16,729 2.4
------- --- ------- ---
Total transaction 128,175 18.9 125,380 18.3
Savings 2.75 308,747 45.5 3.00 310,074 45.3
Certificates 2.80 - 2.99 10,313 1.5 2.90- 2.99 38,288 5.6
3.00 - 3.99 65,117 9.6 3.00- 3.99 65,397 9.6
4.00 - 4.99 46,775 6.9 4.00- 4.99 24,797 3.6
5.00 - 5.99 43,470 6.4 5.00- 5.99 26,573 3.9
6.00 - 6.99 48,047 7.1 6.00- 6.99 43,485 6.3
7.00 - 7.99 18,179 2.7 7.00- 7.99 37,383 5.5
8.00 - 8.99 4,801 .7 8.00- 8.99 5,486 .8
9.00 - 9.99 2,053 .3 9.00- 9.99 2,161 .3
10.00 - 10.99 2,954 .4 10.00- 10.99 4,572 .7
12.00 - 12.99 -- .- 12.00- 12.99 473 .1
------- ---- ------- ----
241,709 35.6 248,615 36.4
------- ---- -------- ----
TOTAL $ 678,631 100.0% 684,069 100.0%
========== ===== ======== =====
WEIGHTED AVERAGE INTEREST
RATE AT YEAR-END 3.51% 3.70%
===== =====
</TABLE>
The components of interest expense were as follows (000's omitted):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <C> <C>
Transaction accounts $ 3,187 3,196 3,756
Savings 8,656 8,821 10,353
Certificates 11,250 12,326 17,694
---------- --------- ----------
TOTAL $ 23,093 24,343 31,803
========== ========= ==========
</TABLE>
52
<PAGE> 53
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
At September 30, 1994, certificates of deposit summarized by year of
maturity are as follows (000's omitted):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT %
<S> <C> <C>
1995 $ 125,888 52%
1996 37,850 16
1997 16,685 7
1998 34,001 14
1999 20,970 9
2000 - 2004 6,315 2
----------- ----
TOTAL $ 241,709 100%
=========== ===
</TABLE>
Certificates of deposit issued in amounts of $100,000 or more totalled
$18,513,000 at September 30, 1994.
12. NOTES PAYABLE TO THE FEDERAL HOME LOAN BANK
The notes payable to the Federal Home Loan Bank of Cincinnati are
payable at maturity with interest rates ranging from 5.000% to 6.757%
(weighted average 5.111%) at September 30, 1994. Under a blanket
floating lien security agreement with the Federal Home Loan Bank of
Cincinnati, Citizens Savings Bank is required to maintain as collateral
qualifying first mortgage loans equal to 150% of the notes payable.
Principal maturities for notes payable outstanding at September 30, 1994
are as follows by year of maturity:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
<S> <C>
1995 $ 9,500,000
2006 302,167
--------------
TOTAL $ 9,802,167
==============
</TABLE>
53
<PAGE> 54
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. MORTGAGE LOANS PAYABLE
Mortgage loans payable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
TERMS 1994 1993
<S> <C> <C>
Monthly installments of $34,276 including
interest at 10.25%, maturing 2005. $ 3,542,279 3,587,934
Monthly installments of $38,908 including
interest at 10.25%, maturing 2005. 4,020,963 4,072,789
Monthly installments of $14,029 including
interest at 10.375%, maturing 2006. 1,456,879 1,473,148
------------ -----------
TOTAL $ 9,020,121 9,133,871
============ ===========
</TABLE>
The above loans are secured by real estate investment properties with
book values of $11,262,993 at September 30, 1994.
54
<PAGE> 55
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. FEDERAL INCOME TAXES
As discussed in Note 1, CIVISTA adopted SFAS No. 109 as of October 1,
1993 on a prospective basis, resulting in no material cumulative
adjustment to current net income or stockholders' equity. CIVISTA files
a consolidated federal income tax return with its subsidiaries.
Citizens Savings Bank has qualified under provisions of the Internal
Revenue Code that permit it to deduct from taxable income an allowance
for bad debts based on experience or a percentage of taxable income
before such deduction. The differences between the statutory tax rates
and the effective tax rates used in determining CIVISTA's tax provision
are as follows (000's omitted):
<TABLE>
<CAPTION>
Years ended September 30,
1994 1993 1992
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Computed "expected" tax rate $ 5,984 35.0% 6,898 34.8% 5,111 34.0%
Increase (decrease) in rate
resulting from:
Bad debt deductions -- -- ( 567) (2.9) ( 451) (3.0)
Losses on sales of real
estate owned, net and
provisions for losses -- -- 247 1.2 601 4.0
Tax-exempt mortgage interest -- -- -- -- ( 30) ( .2)
Other, net 66 0.4 201 1.0 246 1.6
------- ------ ------ ------ ------ ------
$ 6,050 35.4% 6,779 34.1% 5,477 36.4%
======= ====== ======= ===== ====== ======
</TABLE>
The significant temporary differences included in the net deferred tax
asset are as follows (000's omitted):
<TABLE>
<CAPTION>
September 30, 1994
------------------
<S> <C>
Deferred tax asset:
Loan origination fees $ 1,000
Reserve for loan losses 928
Differences in pension expense 629
Deferred income 759
Other 915
---------
Total deferred tax assets 4,231
---------
Deferred tax liabilities:
FHLB stock dividends 1,062
Tax reserves on loans 1,519
Prepaid expenses 173
Differences in depreciation expense 784
---------
Total deferred tax liabilities 3,538
---------
Net deferred tax asset $ 693
=========
</TABLE>
55
<PAGE> 56
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The net deferred tax asset at October 1, 1993, the date of
implementation of SFAS No. 109, was $656,000. The difference between
this balance and the $693,000 balance at year end results in the
deferred benefit of $37,000. Prior year deferred tax benefits were
calculated using the deferred income method, and have not been restated.
Deferred federal income tax benefit resulted from timing differences in
the recognition of income and expense for tax and financial statement
purposes. The source of these differences and the tax effect of each
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1993 1992
<S> <C> <C>
Deferred loan fees $( 350,343) ( 452,952)
FHLB stock dividend 85,150 91,280
FHLB stock redemption ( 25,856) ( 15,881)
Lease financing ( 22,091) ( 46,145)
Employee benefits ( 296,635) ( 238,583)
Real estate partnerships 19,651 ( 294,229)
Other, net 363,124 ( 36,490)
----------- ----------
TOTAL $( 227,000) ( 993,000)
=========== ==========
</TABLE>
As required by SFAS No. 109, CIVISTA has determined that it is not
required to establish a valuation reserve for the deferred tax asset
since it is "more likely than not" that the deferred tax of $693,000
will be principally realized through future reversals of existing
taxable temporary differences, future taxable income, and tax planning
strategies. CIVISTA's conclusion that it is "more likely than not" that
the deferred tax asset will be realized is based on a history of growth
in earnings and the prospects for continued growth including an analysis
of potential uncertainties that may affect future operating results.
CIVISTA will continue to review the tax criteria related to the
recognition of deferred tax assets on a quarterly basis.
56
<PAGE> 57
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. SHAREHOLDERS' EQUITY
The number of common shares and treasury shares reflect the two-for-one
stock split of November 22, 1993.
OTS regulations require savings institutions to maintain certain minimum
levels of regulatory capital. An institution that fails to comply with
its regulatory capital requirements must obtain OTS approval of a
capital plan and can be subject to a capital directive and certain
restrictions on its operations. At September 30, 1994, the minimum
regulatory capital regulations require institutions to have tangible
capital equal to 1.5 percent of adjusted total assets, a 3 percent
leverage capital ratio and an 8 percent risk-based capital ratio.
The 8 percent risk-based regulatory capital requirement is based solely
on the credit risk weighting of the institution's assets. The OTS has
issued a final regulation adding an interest rate risk component to the
risk-based regulatory capital requirement. This regulation affects
capital calculations beginning March 31, 1995.
On December 19, 1992, the prompt corrective action regulations of the
Federal Deposit Insurance Corporation Improvement Act became effective.
These regulations define specific capital categories based on an
institution's capital ratios. The capital categories are "well
capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized".
Institutions categorized as "undercapitalized" or worse are subject to
certain restrictions, including the requirement to file a capital plan
with the OTS, prohibitions on the payment of dividends and management
fees, restrictions on executive compensation and increased supervisory
monitoring, among other things. Other restrictions may be imposed on
the institution either by the OTS or the FDIC, including requirements to
raise additional capital, sell assets or sell the entire institution.
Once an institution becomes "critically undercapitalized" it is
generally placed in receivership or conservatorship within 90 days.
To be considered "well capitalized", an institution must generally have
a leverage ratio of at least 5 percent, a Tier 1 risk-based capital
ratio of at least 6 percent and a total risk-based capital ratio of at
least 10 percent.
At September 30, 1994, Citizens Savings Bank exceeded all regulatory
capital requirements.
For federal income tax purposes, Citizens Savings Bank is allowed a bad
debt deduction on taxable income and is subject to certain limitations
based on aggregate loans and savings deposits at the end of the year.
Retained earnings at September 30, 1994 and 1993 include approximately
$31,158,000 which represents allocations of earnings for bad debt
deductions for tax purposes only. If the amounts which qualify as
deductions for federal income tax purposes are later used for purposes
other than to absorb loan losses, including distributions in
liquidation, they will be subject to federal income tax at the then
current corporate tax rate.
57
<PAGE> 58
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. EMPLOYEE BENEFIT PLANS
A defined benefit pension plan covers substantially all employees. In
general, benefits are based on years of service and the employee's
compensation.
CIVISTA also maintains a supplemental employee retirement plan in order
to provide certain officers with retirement benefits which had
previously been provided through the qualified pension plan's
integration with Social Security. As a result of changes in the
Internal Revenue Code, the plan's integration with Social Security was
eliminated. In general, benefits are based on years of service and the
employee's compensation.
The following table sets forth the funded status of these plans as of
July 31, 1994 and 1993 and the amounts recognized in the consolidated
financial statements. There are no material differences in the
following data as a result of using a July 31 instead of a September 30
measurement date.
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefit of $3,583,700 and
$3,186,000, respectively $ 3,616,400 3,216,400
============== ================
Projected benefit obligation $ 6,935,100 5,289,000
Plan assets at fair value, primarily
U.S. Government obligations, corporate
bonds and common stocks 4,602,500 4,545,700
-------------- ----------------
Unfunded projected benefit obligation ( 2,332,600) ( 743,300)
Unrecognized net losses subsequent to
transition 2,636,300 219,700
Unrecognized prior service cost ( 825,400) ( 893,400)
Unrecognized net liability being recognized over
employees' average remaining service life 229,200 243,600
-------------- ----------------
ACCRUED PENSION EXPENSE $( 292,500) ( 1,173,400)
============== ================
</TABLE>
58
<PAGE> 59
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Net pension expense included the following components:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992
<S> <C> <C> <C>
Service cost $ 564,500 366,000 341,900
Interest cost on projected benefit obligation 429,200 364,400 332,100
Actual return on plan assets ( 113,900) ( 421,600) ( 360,900)
Net total of other components ( 220,600) 22,400 ( 37,700)
---------- ---------- ----------
NET PENSION EXPENSE $ 659,200 331,200 275,400
========== ========== ==========
</TABLE>
Significant assumptions used in determining plan obligations and net
pension expense are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Expected long-term rate of return on assets 6.00% 7.75% 7.75%
Weighted average discount rate 6.00% 7.75% 7.75%
Rate of increase in future compensation 5.00% 5.00% 5.00%
==== ==== ====
</TABLE>
In addition to pension benefits, CIVISTA provides certain health care
benefits for retirees who have at least 15 years of full-time service
and elect to continue health care coverage. CIVISTA will contribute the
lesser of 75% of the monthly premiums or certain dollar caps based on
whether the participants are eligible for Medicare. CIVISTA's
postretirement health care plan is an unfunded plan.
59
<PAGE> 60
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CIVISTA's net periodic postretirement benefit cost including accrued
postretirement benefit liability and accumulated postretirement benefit
obligation are as follows:
<TABLE>
<CAPTION>
Accrued Accumulated
Postretirement Postretirement
Benefit Liability Benefit Obligation
1994 1993 1994 1993
<S> <C>
BALANCE AT BEGINNING
OF YEAR $( 808,126) ( 745,230) ( 1,017,868) ( 768,869)
Recognition of components of
net periodic postretirement
benefit cost:
Service cost ( 44,421) ( 31,280) ( 44,421) ( 31,280)
Interest cost ( 62,775) ( 60,798) ( 62,775) ( 60,798)
Net amortization ( 5,141) -- ( 5,141) --
------------ ------------- ------------- ------------
( 112,337) ( 92,078) ( 112,337) ( 92,078)
Benefit payments 33,447 29,182 33,447 29,182
Unrecognized net gain (loss) -- -- 123,058 ( 186,103)
------------ ------------- ------------- ------------
Net change ( 78,890) ( 62,896) 44,168 ( 248,999)
------------ ------------ ------------- ------------
BALANCE AT END OF YEAR $( 887,016) ( 808,126) ( 973,700) ( 1,017,868)
============ ============ ============= ============
Accumulated postretirement benefit obligation:
Retirees $ 228,400 252,445
Fully eligible active plan participants 336,500 104,460
Other active plan participants 408,800 660,963
------------- ------------
$ 973,700 1,017,868
============= ============
</TABLE>
In determining these amounts, CIVISTA assumed in 1994 that future
increases in health care cost trend rates would be 11.5% for the next
several years and then decline gradually to 5.5% in 2000. In 1993,
CIVISTA assumed that future increases in health care cost trend rates
would be 11.5% for the next several years and then decline gradually to
5.5% in 2000. CIVISTA used 7.00% and 6.00% in 1994 and 1993,
respectively as the discount rates for valuing these future payments.
Based on the dollar caps which CIVISTA has in the plan, a one percentage
point increase in the assumed health care cost trend rate would not
increase the aggregate of the service and interest cost components of
net periodic postretirement health care benefits cost.
60
<PAGE> 61
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. STOCK OPTION PLAN
In January 1993, shareholders approved the 1993 CIVISTA Corporation
Stock Option Plan with 320,000 common shares authorized for grants of
options and stock appreciation rights to full-time employees at the
discretion of the Stock Option Committee of the Board. The option
prices are fixed by the Stock Option Committee of the Board at not less
than fair market value at the time the option is granted and no option
has a life of more than ten years. Options are exercisable upon grant.
The 1993 Plan superceded the previously existing stock option plan.
Options granted under such previous plan remain outstanding and have
terms identical to the 1993 Plan.
<TABLE>
<CAPTION>
SHARES
AVAILABLE OPTIONS RANGE OF OPTION
FOR GRANT OUTSTANDING PRICE PER SHARE
<S> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1991 98,400 221,600 $ 7.44 - $ 8.44
Granted ( 82,800) 82,800 14.25
Exercised -- ( 21,600) 7.44 - 8.44
----------- ----------- -------------------
BALANCE, SEPTEMBER 30, 1992 15,600 282,800 7.44 - 14.25
Approved 320,000 --
Cancelled ( 15,600) --
Granted ( 32,600) 32,600 21.00
Exercised -- ( 20,400) 7.44 - 8.44
----------- ----------- ------------------
BALANCE, SEPTEMBER 30, 1993 287,400 295,000 7.44 - 21.00
Exercised -- ( 13,200) 7.44 - 14.25
----------- ----------- ------------------
BALANCE, SEPTEMBER 30, 1994 287,400 281,800 $ 7.44 - $ 21.00
=========== =========== =================
</TABLE>
61
<PAGE> 62
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. PARENT COMPANY
Citizens Savings Bank's ability to pay future cash dividends to CIVISTA
is limited by regulations and a dividend agreement with the Office of
Thrift Supervision. By regulation, as long as Citizens Savings Bank has
capital immediately prior to, and on a pro forma basis after giving
effect to, a proposed dividend that is equal to or greater than the
amount of its fully phased-in (July 1, 1996) capital requirement,
Citizens Savings Bank can dividend 100 percent of its net income during
a calendar year plus one-half of its surplus capital at the beginning of
the calendar year. Under its dividend agreement, as long as Citizens
Savings Bank exceeds its fully phased-in capital requirement, Citizens
Savings Bank can dividend 100 percent of its net income for the prior
eight quarters less cumulative dividends paid for such prior eight
quarters.
Condensed financial information of CIVISTA (parent company only) is as
follows:
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CONDITION
SEPTEMBER 30, 1994 AND 1993
<S> <C> <C>
1994 1993
ASSETS:
Cash including short-term cash investments $ 6,628,994 3,442,478
Investment securities with market
values of $4,013,000 and $6,052,000,
respectively 3,990,892 6,034,792
Investment in Citizens Savings Bank, at
equity in underlying value of net assets 62,284,041 60,710,905
Investment in other subsidiaries, at equity
in underlying value of net assets 18,093,461 12,217,399
Real estate investment property, net 8,850,531 8,940,873
Other assets 1,317,656 1,395,102
--------------- ------------
TOTAL ASSETS $ 101,165,575 92,741,549
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgage loans payable $ 7,563,242 7,660,723
Amount due CASNET 1,013,934 1,534,948
Other liabilities 807,551 584,741
Shareholders' equity 91,780,848 82,961,137
--------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 101,165,575 92,741,549
=============== ============
</TABLE>
62
<PAGE> 63
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Income:
Cash dividends from Citizens Savings Bank $ 1,823,000 2,181,000 3,069,000
Cash dividends from other subsidiaries 693,000 371,250 429,000
Interest income 320,442 214,186 203,780
Real estate operations 2,787,764 2,657,795 2,566,970
Other income 27,404 22,517 71,601
--------------- ----------- -----------
5,651,610 5,446,748 6,340,351
-------------- ----------- -----------
Expenses:
Interest expense 789,721 799,302 807,921
Real estate operations 1,649,713 1,539,891 1,526,354
Other 987,164 659,199 645,774
-------------- ----------- -----------
3,426,598 2,998,392 2,980,049
-------------- ------------ -----------
Earnings before federal income taxes
and equity in undistributed income
of subsidiaries 2,225,012 2,448,356 3,360,302
-------------- ----------- -----------
Federal income taxes (benefit) ( 102,000) ( 36,000) ( 47,000)
Equity in undistributed income of subsidiaries 8,721,390 10,588,006 6,149,336
-------------- ----------- -----------
NET EARNINGS $ 11,048,402 13,072,362 9,556,638
============== =========== ===========
</TABLE>
63
<PAGE> 64
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 11,048,402 13,072,362 9,556,638
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in undistributed income of
subsidiaries ( 8,721,390) (10,588,006) ( 6,149,336)
Depreciation 477,693 429,316 399,595
Other 361,750 2,800 ( 1,004,722)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 3,166,455 2,916,472 2,802,175
------------ ------------ ------------
INVESTING ACTIVITIES:
Return of investment in
subsidiaries, net 1,170,540 411,085 888,604
Purchase of investment securities ( 992,500) ( 6,044,865) --
Maturities of investment securities 3,000,000 -- --
Purchase of real estate investment
property ( 387,351) ( 268,883) ( 191,398)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 2,790,689 ( 5,902,663) 697,206
------------ ----------- ------------
FINANCING ACTIVITIES:
Mortgage loan payments ( 97,481) ( 88,024) ( 79,482)
Cash dividends ( 2,270,658) ( 1,739,662) ( 1,429,228)
CASNET, (repayment) borrowing ( 521,014) 1,534,948 --
Purchase of treasury stock -- -- ( 2,449)
Stock options exercised 118,525 160,625 164,650
------------ ------------ ------------
NET CASH USED BY
FINANCING ACTIVITIES ( 2,770,628) ( 132,113) ( 1,346,509)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,186,516 ( 3,118,304) 2,152,872
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 3,442,478 6,560,782 4,407,910
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 6,628,994 3,442,478 6,560,782
============ ============ ============
</TABLE>
64
<PAGE> 65
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial and per share data for the years ended September 30,
1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
IN THOUSANDS (EXCEPT FOR PER SHARE DATA)
QUARTERS
FIRST SECOND THIRD FOURTH
1994:
<S> <C> <C> <C> <C>
Interest income $ 13,823 13,447 13,369 13,570
Interest expense 6,171 6,015 5,992 6,127
Provision for loan losses 58 45 40 20
Other income 3,329 4,185 3,187 3,080
Other expenses 6,479 7,254 6,507 6,184
Federal income taxes 1,463 1,443 1,468 1,676
--------- -------- --------- ---------
NET EARNINGS: $ 2,981 2,875 2,549 2,643
========= ======== ========= =========
PER SHARE: $ .82 .78 .69 .73
========= ======== ========= ========
1993:
Interest income $ 14,579 14,036 14,008 13,996
Interest expense 6,502 6,195 6,249 6,416
Provision for loan losses 241 183 233 160
Other income 3,795 4,588 4,225 3,981
Other expenses 7,170 6,735 6,437 6,836
Federal income taxes 1,523 1,832 1,784 1,640
--------- --------- --------- --------
NET EARNINGS: $ 2,938 3,679 3,530 2,925
========= ======== ========= ========
PER SHARE: $ .82 1.02 .98 .82
========= ======== ========= ========
</TABLE>
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
about Fair Value of Financial Instruments", requires disclosure of fair
value information about financial instruments for which it is
practicable to estimate that value. Where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. These techniques are significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. As a result, the derived fair value estimates cannot
be substantiated by comparison to independent markets and, in many
cases, could not be realized in a current market exchange. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of CIVISTA.
65
<PAGE> 66
THE CIVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The estimated fair values of CIVISTA's financial instruments are as
follows (000's omitted):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
CARRYING FAIR
VALUE VALUE
<S> <C> <C>
ASSETS:
Cash including short-term cash investments $ 25,395 25,395
Investment securities 133,499 129,961
Mortgage-backed securities 94,069 88,806
Mortgage loans 481,635 474,069
Other loans 23,602 24,067
Federal Home Loan Bank stock 5,284 5,284
LIABILITIES:
Transaction and savings deposits 436,922 436,922
Certificates of deposit 241,709 242,476
Notes payable to Federal Home Loan Bank
and mortgage loans payable 18,822 18,986
</TABLE>
CASH INCLUDING SHORT-TERM CASH INVESTMENTS. For cash and short-term
cash investments, the carrying amount is a reasonable estimate of fair
value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. Fair values for investment
and mortgage-backed securities are based on quoted market prices.
MORTGAGE AND OTHER LOANS. For certain homogeneous categories of loans,
such as some residential mortgages, and consumer loans, fair value is
estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The
fair value of other types of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit rating and the same remaining
maturities.
FEDERAL HOME LOAN BANK STOCK. The fair value is estimated to be the
carrying value which is par. All transactions in the capital stock of
the Federal Home Loan Bank of Cincinnati are executed at par.
DEPOSITS. The fair value of transaction and savings deposits is the
amount payable on demand at the reporting date. The fair value of
certificates of deposit is estimated using rates currently offered for
deposits of similar remaining maturities.
NOTES PAYABLE TO FEDERAL HOME LOAN BANK AND MORTGAGE LOANS PAYABLE.
Rates currently available to CIVISTA for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
66
<PAGE> 67
MANAGEMENT'S REPORT
- -------------------
The management of The CIVISTA Corporation is responsible for the preparation
and accuracy of the financial information presented in this annual report.
These consolidated financial statements were prepared in accordance with
generally accepted accounting principles, based on the best estimates and
judgement of management.
CIVISTA maintains a system of internal controls designed to provide reasonable
assurance that assets are safeguarded, that transactions are executed in
accordance with CIVISTA's authorization and policies, and that transactions are
properly recorded so as to permit preparation of financial statements that
fairly present the financial position and results of operations in conformity
with generally accepted accounting principles. These systems and controls are
reviewed by our internal auditors and independent auditors.
The Audit Committee of the Board of Directors is composed of only outside
directors and has the responsibility for the recommendation of the independent
auditors for CIVISTA. The Audit Committee meets annually with internal
auditors and our independent auditors to review accounting, auditing and
financial matters. The independent auditors and the internal auditors have
direct access to the Audit Committee.
Richard G. Gilbert
Chairman and
Chief Executive Officer
Jack R. Gravo
President
67
<PAGE> 68
KPMG Peat Marwick LLP
Certified Public Accountants
1 Cascade Plaza, Suite 1110
Akron, OH 44308
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The CIVISTA Corporation:
We have audited the accompanying consolidated statements of condition of The
CIVISTA Corporation and subsidiaries as of September 30, 1994 and 1993 , and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended September 30,
1994. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The CIVISTA
Corporation and subsidiaries as of September 30, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note 1(i) to the consolidated financial statements, the
Corporation adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, on October 1, 1993.
KPMG Peat Marwick LLP
November 23, 1994
68
<PAGE> 69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF CIVISTA
- --------------------
PAUL G. BASNER, age 65, is Vice Chairman of the Board of CIVISTA, a position he
has held since 1988. He is President and Chief Executive Officer of Citizens
Savings, positions he has held since 1983 and 1993 respectively, and was Chief
Operating Officer of Citizens Savings from 1983 to 1993. Mr. Basner first
joined Citizens Savings in 1955 and has been a director of Citizens Savings
since 1971.
KAREN S. BELDEN, age 52, is President and Co-owner of Easterday's Gift Shop and
Florist in Canton, Ohio, positions she has held since 1982. Mrs. Belden has
been a director of both CIVISTA and Citizens Savings boards since 1993.
JAMES T. DOUGHERTY, age 71, is a business consultant in Canton, Ohio. Mr.
Dougherty was President of Forest Hill Cemetery Association until 1986. He has
been a director of Citizens Savings since 1978 and a director of CIVISTA since
1988.
RICHARD G. GILBERT, age 74, is Chairman and Chief Executive Officer of CIVISTA,
positions he has held since 1988. He is also the Chairman of Citizens Savings,
a position he has held since 1971, and was Chief Executive Officer of Citizens
Savings from 1958 to January 1993. Mr. Gilbert first joined Citizens Savings
in 1947. He has been a director of Citizens Savings since 1954. Mr. Gilbert
is also Chairman of all other CIVISTA subsidiaries.
JACK R. GRAVO, age 48, is President and a director of CIVISTA, positions he has
held since 1988. He is Executive Vice President and Chief Operating Officer
(since January 1993), and Chief Financial Officer (since 1980) of Citizens
Savings. Mr. Gravo was Senior Vice President of Citizens Savings from 1980 to
January 1993. He joined Citizens Savings in 1972 and became a director in
1991.
EMMANUEL D. PARADESES, age 60, is President and Chief Executive Officer of
Citizens Savings Corporation, a subsidiary of CIVISTA, positions he has held
since 1982 and 1993, respectively. He has been Senior Vice President-Marketing
of Citizens Savings since 1980. Mr. Paradeses first joined Citizens Savings in
1967 and became a director in 1991. He has been a director of CIVISTA since
1988.
DONALD A. PEPPARD, age 77, is Chairman of the Board of Vail Industries, Inc. in
Navarre, Ohio, a holding company whose subsidiaries engage in the manufacture
of packaging materials. Mr. Peppard was President of Massillon Container
Company, a manufacturer of packaging materials and a subsidiary of Vail
Industries, Inc., until 1986. He has been a director of Citizens Savings since
1978 and a director of CIVISTA since 1988.
DONALD M. STEIN, age 78, is President of National Iron and Metal Company, an
iron and metal broker and processor located in Canton, Ohio. He has been a
director of Citizens Savings since 1965 and a director of CIVISTA since 1988.
JACK T. WHELAN, age 76, retired in 1982 as President of Ohio Paper Products
Company, a can manufacturer located in Massillon, Ohio. He has been a director
of Citizens Savings since 1978 and a director of CIVISTA since 1988.
F. STUART WILKINS, age 66, is a member of the Canton law firm of Krugliak,
Wilkins, Griffiths & Dougherty, Co., L.P.A. He has been a director of Citizens
Savings since 1967 and a director of CIVISTA since 1988.
69
<PAGE> 70
EXECUTIVE OFFICERS OF CIVISTA
- -----------------------------
Listed below are the elected officers of CIVISTA who are considered to be
executive officers of CIVISTA. Officers are elected annually by the Board of
Directors. All of the listed officers have held their positions with CIVISTA
since August 17, 1988, except David A. Sarver who was elected Treasurer on
January 17, 1990.
<TABLE>
<S> <C> <C>
Name, Age Business Experience
and Position with CIVISTA During Last 5 Years Other than with CIVISTA
- ------------------------- -------------------------------------------
Richard G. Gilbert, 74 Chief Executive Officer of Citizens Savings Bank from
Chairman and Chief 1958 to January 1993, and Chairman of
Executive Officer Citizens Savings Bank since 1971.
Paul G. Basner, 65 Chief Executive Officer of Citizens Savings Bank since
Vice Chairman January 1993. President of Citizens Savings Bank
since January 1983. Chief Operating Officer of
Citizens Savings Bank from January 1983 to January 1993.
Jack R. Gravo, 48 Executive Vice President and Chief Operating Officer
President of Citizens Savings Bank since January 1993. Senior Vice
President from 1980 to January 1993.
Chief Financial Officer of Citizens Savings Bank since 1980.
David A. Sarver, 43 Vice President of Finance of Citizens Savings Bank
Vice President and Treasurer since 1987.
Janice R. Van Voorhis, 56 Vice President - Administration of Citizens Savings Bank
Vice President and Secretary since 1986 and Corporate Secretary of Citizens Savings Bank since 1978.
</TABLE>
70
<PAGE> 71
Listed below are the persons who are elected officers of Citizens Savings
Bank , CSC and CASNET who are also considered to be executive officers of
CIVISTA.
<TABLE>
<CAPTION>
Name, Age Business Experience
and Position During Last 5 Years
- ------------ -------------------
<S> <C>
James T. Harbert, 52 Chief Executive Officer of Crest Investments, Inc. since
President and Chief Executive Officer January 1993. President of Crest Investments, Inc.
Crest Investments, Inc., since 1990. Senior Vice President - Operations of Citizens
Senior Vice President - Operations Savings Bank since 1979.
and Treasurer of Citizens Savings Bank
Emmanuel D. Paradeses, 60 Chief Executive Officer of Citizens
President and Chief Executive Officer Savings Corporation since January 1993.
of Citizens Savings Corporation; President of Citizens Savings
Senior Vice President-Marketing of Corporation since 1982. Senior Vice
Citizens Savings Bank President - Marketing of Citizens Savings Bank since 1980.
Jane A. Pope, 61 Senior Vice President-Lending Division of Citizens Savings
Senior Vice President Bank since October, 1990. Previously Vice President -
Citizens Savings Bank Loan Closing and Processing Manager since 1980.
Thomas L. Tuersley, 51 Chief Executive Officer of CASNET
President and Chief Executive Officer since January 1993. President and Chief
CASNET Operating Officer of CASNET since 1987.
</TABLE>
71
<PAGE> 72
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation of CIVISTA's chief executive
officer and the other four most highly compensated executive officers of
CIVISTA for each of the three fiscal years ended September 30, 1994, 1993 and
1992. CIVISTA officers are compensated by the subsidiaries of CIVISTA for
which they principally provide services and not by CIVISTA.
<TABLE>
=============================================================================================================
SUMMARY COMPENSATION TABLE
=============================================================================================================
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION (1) AWARDS
------------------- ------
SECURITIES UNDERLYING
OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (NO. OF SHARES) (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard G. Gilbert 1994 180,000 $ 27,000 -0-
Chairman and Chief Executive Officer - 1993 180,000 25,000 6,000
CIVISTA; Chairman of all CIVISTA 1992 180,000 25,000 20,000
subsidiaries
Paul G. Basner 1994 187,000 26,000 -0-
Vice Chairman, CIVISTA; 1993 170,000 20,000 5,600
President and Chief Executive Officer - 1992 161,000 20,000 16,000
Citizens Savings Bank
Jack R. Gravo 1994 135,000 21,000 -0-
President, CIVISTA; 1993 127,000 15,000 4,200
Executive Vice President - 1992 121,000 15,000 12,000
Citizens Savings Bank
Emmanuel D. Paradeses 1994 134,000 19,000 -0-
President and Chief Executive Officer - 1993 127,000 14,000 4,200
Citizens Savings Corporation; 1992 121,000 15,000 12,000
Senior Vice President - Marketing -
Citizens Savings Bank
James T. Harbert 1994 107,000 9,700 -0-
President and Chief Executive Officer - 1993 102,000 7,000 3,200
Crest Investments; 1992 97,000 7,000 7,000
Senior Vice President - Operations -
Citizens Savings Bank
- -------------------------------------------------------------------------------------------------------------
<FN>
(1) The aggregate amount of perquisites and other personal benefits received by any of the above-named executive officers in
1994, 1993 and 1992 was minimal and did not exceed the amounts as to which disclosure would be required.
(2) Although the 1993 Stock Option Plan (as well as its predecessor plan) permits the granting of stock appreciation rights
(SARs), no SARs were granted during the fiscal years ended September 30, 1994, 1993 or 1992.
</TABLE>
72
<PAGE> 73
STOCK OPTIONS
No stock options or SARS were granted during the fiscal year ended September
30, 1994. The following table provides information regarding exercises of
stock options during the fiscal year ended September 30, 1994 and outstanding
stock options at September 30, 1994.
Pursuant to the merger agreement with FBOH, upon consummation of the merger,
FBOH will assume the CIVISTA Stock Option Plans such that all outstanding
options will remain outstanding and be exercisable for shares of FBOH common
stock, with the number of FBOH shares and the option exercise price to be
determined based upon the exchange ratio applicable in the merger.
<TABLE>
===================================================================================================================================
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
===================================================================================================================================
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT
YEAR-END FISCAL YEAR-END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
Name (#) ($) (1) (#) (2) ($) (1) (2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RICHARD G. GILBERT 6,600 95,025 65,400 1,799,950
PAUL G. BASNER 65,600 1,832,750
JACK R. GRAVO 4,200 96,638 48,000 1,336,113
EMMANUEL D. PARADESES 47,400 1,317,550
JAMES T. HARBERT 15,000 372,850
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The "value realized" on options exercised was calculated by determining the difference between the fair market value of the
underlying shares at the exercise date and the exercise price of the option. The "value of unexercised in-the-money
options/SARs at fiscal year-end" was calculated by determining the difference between the fair market value of the underlying
shares at September 30, 1994 and the exercise price of the option. An option is "in-the-money" when the fair market value of
the underlying shares exceeds the exercise price of the option.
(2) All unexercised options were fully exercisable at September 30, 1994. Although the 1993 Stock Option Plan (as well as its
predecessor plan) permits the granting of SARs, no SARs were outstanding at September 30, 1994.
</TABLE>
73
<PAGE> 74
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee administers the executive compensation program for
CIVISTA and its subsidiaries. A primary purpose of the Committee's actions is
to provide incentive for the executives to manage CIVISTA's business
effectively for the benefit of its shareholders. The Committee reviews all
issues pertaining to executive compensation and submits its recommendations to
the Board of Directors for approval. The components of executive compensation
are annual salary, cash bonuses and, for selected executives, stock option
grants.
The Committee determines and recommends the annual salary to be paid to Mr.
Gilbert, Chairman and Chief Executive Officer, and, after considering the
recommendation of Mr. Gilbert, the annual salary to be paid to each of the
other executive officers. An executive's annual salary is based upon the
Committee's and the Board's subjective judgment as to the executive's
individual performance and contribution to the profitability of CIVISTA and its
subsidiaries, considered in the context of the range of annual salaries of
executives of comparably-sized financial institutions in CIVISTA's general
geographic area. Profitability of CIVISTA and its subsidiaries and the market
price of CIVISTA's shares also are considered by the Committee in recommending
the annual salaries of executives, but no specific formulas or guidelines are
utilized in considering such factors.
Cash bonuses are determined and recommended in accordance with the same
procedures applicable to annual salaries. These bonuses are paid to executive
officers and other key employees of CIVISTA and its subsidiaries, based upon
company performance and perceived individual contribution. Company performance
includes the profitability of CIVISTA and its subsidiaries on a consolidated
basis, the market price of CIVISTA common shares, and the profitability of the
CIVISTA subsidiary for which the executive or key employee provides services.
The relationship of bonuses to individual and company performance reflects the
general subjective judgment of the Committee and the Board of Directors rather
than application of any specific formulas or guidelines.
During each fiscal year, a Stock Option Committee considers the granting of
stock options to senior executives under CIVISTA's Stock Option Plan. Stock
options are utilized as the primary vehicle for rewarding executives for the
long-term achievement of company goals. The Stock Option Committee, consisting
entirely of nonemployee directors of the Compensation Committee, meets annually
to determine option grants for senior executives. In considering whether to
grant options to an executive and in determining the size of the grant, the
Stock Option Committee considers the individual's level of responsibility,
performance, compensation and assessed potential as well as the historical
option practices of CIVISTA.
The merger agreement with FBOH contains various limitations regarding executive
compensation pending consummation of the merger. One of these provisions
precludes the granting of merit increases to officers of CIVISTA and its
subsidiaries who are parties to a Severance Agreement. The salary increases
shown in the Summary Compensation Table for fiscal 1994 were determined in
September 1993 and the effect of the merger agreement was to preclude the
granting of merit increases that customarily would have been considered in
September 1994. Another provision limits bonuses to executive officers and
other employees to the aggregate of bonuses paid for fiscal year 1993 plus an
agreed upon amount. Bonuses for executive officers for fiscal year 1994 were
determined on the basis described above but subject to this merger agreement
limitation. The merger agreement also precludes the granting of stock options
subsequent to the time it was signed and no stock options were granted during
fiscal year 1994.
COMPENSATION COMMITTEE
Richard G. Gilbert, Chairman Jack T. Whelan
Paul G. Basner F. Stuart Wilkins
Donald M. Stein
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of CIVISTA is comprised of Messrs. Gilbert, Basner,
Stein, Whelan and Wilkins. Mr. Gilbert is Chairman and Chief Executive Officer
of CIVISTA and Chairman of all CIVISTA subsidiaries. Mr. Basner is Vice
Chairman of CIVISTA and President and Chief Executive Officer of Citizens
Savings.
74
<PAGE> 75
STOCK PERFORMANCE GRAPH
Graph Here
The above graph represents the five year cumulative total return on $100
invested on September 30, 1989 in CIVISTA common shares compared to $100
invested in all U.S. companies traded on NASDAQ or $100 invested in all savings
and loan companies traded on NASDAQ. This graph shows that CIVISTA experienced
a moderate return between September 30, 1989 and September 30, 1991. Between
September 30, 1991 and September 30, 1993, CIVISTA's total return increased
dramatically from $120 to $333. In 1994, CIVISTA's total return jumped to
$583. The 1994 increase directly relates to CIVISTA's pending merger with
FBOH. The index of all U.S. Companies traded on NASDAQ fell during the year
ended September 30, 1990, but then rose to $117 and $131 in the years ended
September 30, 1991 and 1992, respectively. From this point, the NASDAQ U.S.
companies rose to $172 at September 30, 1993 and remained at this level at
September 30, 1994. An index comprised of all savings and loan companies which
are traded on NASDAQ showed a drop to $55 at September 30, 1990 before rising
to $84 at September 30, 1991 and $116 at September 30, 1992. This was followed
by a jump to $190 at September 30, 1993 and $218 at September 30, 1994. The
dollar value of $100 invested at September 30, 1989 compared to September 30,
1990 through 1994, assuming immediate reinvestment of dividends, is as follows:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
The CIVISTA Corporation $ 100 105 120 217 333 583
NASDAQ all U.S. Companies 100 74 117 131 172 172
NASDAQ Savings and Loan Companies 100 55 84 116 190 218
</TABLE>
75
<PAGE> 76
PENSION BENEFITS
With the exception of Mr. Gilbert, each individual shown in the Summary
Compensation Table is a participant in The CIVISTA Corporation Pension Trust,
which is open for participation to all full-time officers and employees who
have attained age 20-1/2 and have completed one year's service. Mr. Gilbert
received his pension benefits during 1985 and Mr. Basner during 1994 when they
reached the normal distribution age of 65 under the terms of the pension plan.
Retirement benefits and participant contributions to the plan are in proportion
to the participant's base rate of compensation which for executive officers is
their annual salary. Benefits payable at the normal distribution age of 65 are
reduced proportionately for service of less than 40 years. Funding costs in
excess of participant contributions are met by investment of plan assets and
contributions by CIVISTA's affiliates. Each individual shown in the Summary
Compensation Table, except Mr. Gilbert and Mr. Basner, is also a participant in
The CIVISTA Corporation Supplemental Employee Retirement Plan (SERP). During
1991, CIVISTA adopted the SERP to provide retirement benefits which had
previously been provided through the qualified pension plan's integration with
Social Security. As a result of changes in the Internal Revenue Code, the
pension plan's integration with Social Security was eliminated. Benefits
payable at the normal retirement age of 65 are reduced proportionately for
service of less than 40 years. At September 30, 1994, the officers (other than
Mr. Gilbert and Mr. Basner) shown in the Summary Compensation Table had years
of credited service as follows: Mr. Gravo - 22 years; Mr. Paradeses - 28
years; Mr. Harbert - 26 years.
The estimated annual benefits payable upon retirement are as follows: Mr.
Gravo $70,656; Mr. Paradeses $67,248; and Mr. Harbert $53,316. The amounts of
estimated annual benefits assume: (a) that the participant remains in full-time
service until the normal distribution age of 65; (b) that the participant's
base rate of compensation continues at the same rate as that paid at September
30, 1994 (c) that the plan will be continued without substantial modification
until retirement age; and (d) that the benefit will be received as a life
annuity without provision for survivor payments.
It is the intent to merge the CIVISTA pension plan into FBOH's defined benefit
plan. CIVISTA employees will be entitled to their accrued benefits as of the
merger date (subject to vesting requirements) and will be credited with service
for CIVISTA employment for participation and vesting purposes.
SEVERANCE PAYMENT AGREEMENTS
In 1989, the Severance Payment Agreements which had previously been entered
into with officers of Citizens Savings were revised to add CIVISTA as a party.
Each of the individuals named in the Summary Compensation Table is a party to
such an agreement. The purpose of the Severance Agreements is to reinforce and
encourage the continued attention and dedication of said officers to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of CIVISTA or
any operating company of CIVISTA. Benefits are payable only if a change in
control has occurred and the officer's employment is terminated within one to
three years, depending on the applicable Severance Agreement, after such change
in control for reasons other than "just cause," "good reason," death or normal
retirement.
The principal benefits to be provided to the officers under the Severance
Agreements are (i) a lump sum severance payment equal to a full year's
compensation multiplied by the years for which the Severance Agreement is
written, or a lesser proportional number that relates to the attainment of age
65 (75 in the case of Mr. Gilbert and 66 in the case of Mr. Basner) by such
officer; (ii) a lump sum in lieu of any further profit sharing or incentive
compensation payments equal to 15% of a full year's compensation multiplied as
stated in (i); (iii) a lump sum calculated to approximate the present value of
the additional retirement benefits to which the officer would have become
entitled had the officer remained in the employment of CIVISTA or an operating
company for the same number of years used in computing the lump sum severance
payment; (iv) continued participation in employee benefit programs such as
group life, health and medical insurance coverage for the same number of years
used in computing the lump sum severance payment; and (v) a cash payment equal
to the difference between the exercise price of all outstanding stock options
held by the officer on the date of his or her termination and the higher of the
fair market value of CIVISTA's Common Shares on the date of termination or the
highest price paid for CIVISTA's Common Shares in connection with the change in
control.
Each Severance Agreement for the officers who have stock options outstanding
has been amended, effective at the time of consummation of the merger with
FBOH, to delete the section which provides for a cash payment in lieu of the
right of the holder to exercise CIVISTA's stock options, as summarized in (v)
in the preceding paragraph. The merger agreement provides that FBOH will
assume CIVISTA's obligations under the Severance Agreements as so amended.
76
<PAGE> 77
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF COMMON SHARES
The following table sets forth, as of December 1, 1994, information concerning
the number of CIVISTA common shares beneficially owned, directly or indirectly,
by each director individually, by each executive officer named in the Summary
Compensation Table, and by all directors and executive officers of CIVISTA as a
group. The totals include shares owned individually, by or jointly with family
members and in trusts, and shares acquirable within sixty days through the
exercise of stock options.
<TABLE>
==================================================================================================================
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
Name Number % of Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Richard G. Gilbert 150,026 (2) 4.0 %
Paul G. Basner 89,604 (3) 2.4
Karen S. Belden 5,798 (4) .2
James T. Dougherty 3,360 .1
Jack R. Gravo 60,350 (5) 1.6
James T. Harbert 17,144 (6) .5
Emmanuel D. Paradeses 57,456 (7) 1.5
Donald A. Peppard 3,360 .1
Donald M. Stein 69,000 (8) 2.0
Jack T. Whelan 3,432 .1
F. Stuart Wilkins 35,872 (9) 1.0
All directors and executive officers
as a group (15 persons) 546,270 (10) 14.4
- ------------------------------------------------------------------------------------------------------------------
<FN>
(1) Each person has sole voting and investment power with respect to all shares shown except as otherwise indicated.
(2) Includes 2,000 shares owned by his wife for which he shares voting and investment powers, and 65,400 shares which he has
the right to acquire within sixty days through the exercise of stock options. Does not include 84,000 shares held in a
family trust for the benefit of his children for which he does not have sole or shared voting or investment power and
disclaims beneficial ownership.
(3) Includes 6,700 shares held in his wife's trust for which he shares voting and investment powers and 65,600 shares which
he has the right to acquire within sixty days through the exercise of stock options.
(4) Includes 2,648 shares owned by her husband for which she shares voting and investment powers.
(5) Includes 10,816 shares owned by or jointly with his wife for which he shares voting and investment powers, and 48,000
shares which he has the right to acquire within sixty days through the exercise of stock options.
(6) Includes 2,144 shares owned jointly with his wife for which he shares voting and investment powers and 15,000 shares which
he has the right to acquire within sixty days through the exercise of stock options.
(7) Includes 47,400 shares which he has the right to acquire within sixty days through the exercise of stock options.
(8) Includes 10,520 shares owned by his wife for which he shares voting and investment powers.
(9) Includes 11,296 shares owned by his wife for which he shares voting and investment powers, and 10,472 shares held in a
trust for which he has shared voting and investment powers.
</TABLE>
<PAGE> 78
[FN]
(10) Includes 60,616 shares owned by or jointly with
spouses or held in a trust, for which members of the
group share voting and investment powers, and
281,200 shares which the members of the group have
the right to acquire within sixty days through the
exercise of stock options.
77
<PAGE> 79
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS AND TRANSACTIONS OF MANAGEMENT
The following loan benefits are made available to employees of CIVISTA and its
subsidiaries. Directors and executive officers are ineligible for these
benefits except for balances outstanding at the time of passage of the
Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA).
Mortgage loans and home equity line-of-credit loans are made by Citizens
Savings Bank in the ordinary course of business to employees secured by their
principal residence. Except as described below, such loans are granted on
substantially the same terms, including interest rates and collateral, as those
prevailing for comparable transactions with the public at the time the loan is
granted, and do not involve more than the normal risk of collectibility or
present other unfavorable features. While an employee of CIVISTA or a
subsidiary, interest on a mortgage loan on their principal residence is charged
at the lesser of the loan contract rate or 3/4% above Citizens Savings Bank's
weighted average cost of money. The rate charged on such loans averaged 4.08%
during the year ended September 30, 1994. Interest is currently charged at the
rate of 4.25% per annum. The rate charged on equity line-of-credit loans is 2
percentage points lower than the rate charged non-affiliated persons. Consumer
loans are made at the lowest rate at which such loans are made to
non-affiliated persons. Loans secured by a savings passbook account or a
savings certificate are available to employees at a rate 1 to 2 percentage
points lower than the rate charged non-affiliated persons.
Thomas L. Tuersley, President of The CASNET Group, Inc., has a mortgage loan on
his residence, a consumer loan and a loan on a savings account for which he
receives interest rates as described in the above paragraph. His largest
aggregate amount of indebtedness since October 1, 1993 was $64,850 and his
unpaid balance as of September 30, 1994 was $49,094 at a weighted average rate
of 4.50%.
F. Stuart Wilkins, a director of CIVISTA, is a member of the law firm of
Krugliak, Wilkins, Griffiths & Dougherty, Co., L.P.A. This firm renders legal
services to CIVISTA and its subsidiaries. During the fiscal year ended
September 30, 1994, fees paid by CIVISTA and its subsidiaries for legal
services performed by this law firm did not exceed five percent of the firm's
gross revenues for its last fiscal year.
78
<PAGE> 80
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following financial statements appear in Part II of this report:
Consolidated Statements of Condition
September 30, 1994 and 1993
Consolidated Statements of Operations
Years ended September 30, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity
Years ended September 30, 1994, 1993 and 1992
Consolidated Statements of Cash Flows
Years ended September 30, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
September 30, 1994, 1993 and 1992
Management's Report
Independent Auditors' Report
(a) 2. No financial statement schedules are filed with this report as the
required information is inapplicable.
<TABLE>
<S> <C>
(a) 3. Exhibits
2.1 Agreement of Affiliation and Plan of Merger. (This document appears as Exhibit 99.1 to the Form 8-K as
filed on August 16, 1994, and is incorporated herein by reference.) CIVISTA agrees upon request to
furnish supplementally the schedules to the Agreement of Affiliation and Plan of Merger.
3.1 Amended Articles of Incorporation of the Registrant. (This document appears as Exhibit 3.1 to the Form
10-K for the year ended September 30, 1992 as filed by Amendment No. 1 to such Form 10-K under cover of
Form 8 as filed on March 23, 1993, and is incorporated herein by reference.)
3.2 Code of Regulations of the Registrant. (This document appears as Exhibit 3.2 to the Form 10-K for the
year ended September 30, 1993 filed December 21, 1993 and is incorporated herein by reference.)
4.1 Article Fourth of the Amended Articles of Incorporation and Article One of the Amended Code of
Regulations describe the rights of security holders. See Exhibits 3.1 and 3.2 above.
4.2 CIVISTA agrees upon request to furnish to the SEC copies of financial documents evidencing long-term
debt, which debt in 1994 does not exceed 10% of the total assets of CIVISTA and its subsidiaries on a
consolidated basis.
10.1* The CIVISTA Corporation Supplemental Employee Retirement Plan between CIVISTA and 11 key employees.
(This document appears as Exhibit 10.2 to the Form 10-K filed December 23, 1991 and is incorporated
herein by reference.)
10.2* Stock Option Plan of The CIVISTA Corporation. (This document appears as Exhibit 10.2 to the Form 10-K
for the year ended September 30, 1993 filed December 21, 1993 and is incorporated herein by reference.)
</TABLE>
79
<PAGE> 81
<TABLE>
<S> <C>
10.3* The 1993 CIVISTA Corporation Stock Option Plan. (This document appears as Exhibit 28 to the Form S-8
registration statement of the registrant, file number 33-59792, and is incorporated herein by
reference.)
10.4* Severance payment agreements between The CIVISTA Corporation, Citizens Savings Bank and Richard G.
Gilbert, Paul G. Basner, Jack R. Gravo, James T. Harbert, Emmanuel D. Paradeses, Jane A. Pope and
Janice R. Van Voorhis. (These documents appear as Exhibit 10.4 to the Form 10-K filed December 24,
1990 and are incorporated herein by reference.)
10.5* Severance payment agreement between The CIVISTA Corporation, The CASNET Group, Inc. and Thomas L.
Tuersley. (This document appears as Exhibit 10.5 to the Form 10-K filed December 24, 1990 and is
incorporated herein by reference.)
10.6* Severance payment agreement between The CIVISTA Corporation, Citizens Savings Bank and David A. Sarver.
(This document appears as Exhibit 10.5 to the Form 10-K filed December 22, 1992, and is incorporated
herein by reference.)
11.1 Computation of earnings per share.
22.1 Subsidiaries of the Registrant.
24.1 Consent of KPMG Peat Marwick
27.1 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
</TABLE>
(b) On August 16, 1994, CIVISTA filed a Form 8-K reporting under Item 5 that
CIVISTA had entered into an Agreement of Affiliation and Plan of Merger
with First Bancorporation of Ohio (FBOH) on August 10, 1994, providing
for the merger of CIVISTA into FBOH and the merger of Citizens Savings
Bank of Canton, CIVISTA's savings and loan subsidiary, into The First
National Bank in Massillon, a Stark County subsidiary of FBOH.
80
<PAGE> 82
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized. Dated: December 12, 1994
THE CIVISTA CORPORATION
By /s/ Richard G. Gilbert
------------------------
Richard G. Gilbert
Chairman of the Board,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated. Dated: December
12, 1994
/s/ Richard G. Gilbert /s/ Jack R. Gravo
- ------------------------------ -------------------------
Richard G. Gilbert Jack R. Gravo
Chairman of the Board, Director President, Director
(Principal Executive Officer) (Principal Financial
and Accounting Officer)
/s/ Paul G. Basner /s/ Donald A. Peppard
- ------------------------------ -------------------------
Paul G. Basner Donald A. Peppard
Vice Chairman of the Board, Director
Director
/s/ Karen S. Belden /s/ Donald M. Stein
- ------------------------------ -------------------------
Karen S. Belden Donald M. Stein
Director Director
/s/ James T. Dougherty /s/ Jack T. Whelan
- ------------------------------ -------------------------
James T. Dougherty Jack T. Whelan
Director Director
/s/ Emmanuel D. Paradeses /s/ F. Stuart Wilkins
- ------------------------------ -------------------------
Emmanuel D. Paradeses F. Stuart Wilkins
Director Director
81
<PAGE> 83
EXHIBIT INDEX
Exhibit Paper (P)
- ------- ---------
Electronic (E)
-------------
11.1 Computation of Earnings Per Share. E
22.1 Subsidiaries of the Registrant. E
24.1 Consent of KPMG Peat Marwick. E
27.1 Financial Data Schedule E
82
<PAGE> 1
Exhibit 11.1
The CIVISTA Corporation
Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-----------------------------------------------
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
Computation of primary earnings
per share:
Weighted average number of
common shares outstanding 3,492,996 3,478,330 3,463,116
Add common stock equivalents
for shares issuable under
stock option plan (1) 170,866 116,388 66,524
------------- ------------ ------------
Weighted average number
of shares outstanding adjusted
for common stock equivalents 3,663,862 3,594,718 3,529,640
============= ============ ============
Net earnings $ 11,048,402 13,072,362 9,556,638
============= ============ ============
Primary earnings per share $ 3.02 3.64 2.71
============= ============ ============
<FN>
(1) Additional shares issuable were derived under the treasury stock method using average market price during the period.
</TABLE>
<PAGE> 1
Exhibit 22.1
SUBSIDIARIES OF THE CIVISTA CORPORATION
---------------------------------------
The subsidiaries of CIVISTA are all wholly owned Ohio corporations.
1. Citizens Savings Bank of Canton
2. The CASNET Group, Inc.
3. Crest Investments, Inc.
4. Citizens Investment Corporation
5. Citizens Savings Corporation of Stark County
<PAGE> 1
Exhibit 24.1
KPMG Peat Marwick LLP
Certified Public Accountants
1 Cascade Plaza, Suite 1110
Akron, OH 44308
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
The CIVISTA Corporation:
We consent to incorporation by reference in the Registration Statement filed on
Form S-8 of The CIVISTA Corporation of our report dated November 23, 1994,
relating to the consolidated statements of condition of The CIVISTA Corporation
and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended September 30, 1994, which
report appears in the September 30, 1994 annual report on Form 10-K of The
CIVISTA Corporation.
KPMG Peat Marwick LLP
Akron, Ohio
December 12, 1994
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 15,546,186
<INT-BEARING-DEPOSITS> 9,848,713
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,587
<INVESTMENTS-CARRYING> 227,554,248
<INVESTMENTS-MARKET> 218,193,000
<LOANS> 527,877,336
<ALLOWANCE> 2,725,586
<TOTAL-ASSETS> 798,415,541
<DEPOSITS> 678,630,798
<SHORT-TERM> 9,500,000
<LIABILITIES-OTHER> 9,181,607
<LONG-TERM> 9,322,288
<COMMON> 11,869,905
0
0
<OTHER-SE> 79,910,943
<TOTAL-LIABILITIES-AND-EQUITY> 798,415,541
<INTEREST-LOAN> 40,856,491
<INTEREST-INVEST> 12,698,597
<INTEREST-OTHER> 654,196
<INTEREST-TOTAL> 54,209,284
<INTEREST-DEPOSIT> 23,092,632
<INTEREST-EXPENSE> 1,211,924
<INTEREST-INCOME-NET> 29,904,728
<LOAN-LOSSES> 162,634
<SECURITIES-GAINS> 729,075
<EXPENSE-OTHER> 26,424,168
<INCOME-PRETAX> 17,098,402
<INCOME-PRE-EXTRAORDINARY> 17,098,402
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,048,402
<EPS-PRIMARY> 3.02
<EPS-DILUTED> 2.99
<YIELD-ACTUAL> 3.86
<LOANS-NON> 725,749
<LOANS-PAST> 0
<LOANS-TROUBLED> 279,343
<LOANS-PROBLEM> 3,387,660
<ALLOWANCE-OPEN> 2,692,142
<CHARGE-OFFS> 129,190
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,725,586
<ALLOWANCE-DOMESTIC> 2,725,586
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
